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A    CENTRAL    BANK 


ROBERT    EMMETT    IRETON 

ASSOCIATE  EDITOR 
THE  WALL  STREET  SUMMARY 


NEW    YORK 

ANTHONY    STUMPF     PUBLISHING     CO. 

22     PINE    STREET 

1909 


Copyright,    1909, 
By 
ROBERT    EMMETT    IRETON. 


Set  up   and   electrotyped.     Published   December,    1909. 


Ubc  1>amiIton  press,  t^evc  ]j?ocb 


Ha 


WILLIAM     H.     HURST 

President  of  the  Stock  Quotation  Telegraph  Company 
Treasurer  OF  the  New  York  News  Bureau  Association 

Loyal  Friend  and  Citizen 

This  Book  is  Dedicated 


As  A  Token  of 


Esteem.  Regard  and  Respect 


930953 


CONTENTS. 

OUR  CURRENCY  PROBLEM 1 

A  CENTRAL  BANK'S  FUNCTIONS 15 

FOREIGN  CENTRAL  BANKING  SYSTEMS 31 

I.     Bank  of  England. 
II.     Bank  of  France. 

III.  Imperial  Bank  of  Germany. 

IV.  Canada's  Banking  System. 

EARLY  FEDERAL  BANKS  OF  ISSUE  1 59 

Bank  of  Pennsylvania. 

Bank  of  North  America. 

Bank  of  the  United  States  (first). 

EARLY  FEDERAL  BANKS  OF  ISSUE,  II 73 

Bank  of  the  United  States  (second). 

PLANS  FOR  A  CENTRAL  BANK 85 

Proposals  of  the  New  York  Chamber  of  Commerce — Mr. 
George  M.  Reynolds — Mr.  William  B.  Ridgely — Mr.  Lyman 
J.  Gage — Mr.  George  E.  Roberts — Mr.  N.  W.  Harris — 
Mr.  A.  J.  Frame — Mr.  E.  B.  Vreeland — Senator  Hans- 
brough — Representative  Fornes — Mr.  Charles  A.  Wright — 
Mr.  Paul  M.  Warburg— Mr.  Victor  Moraviretz— Mr. 
Charles  H.  Treat 

CENTRAL  BANK  CONTROVERSY 113 

The  Affirmative, 
r        The  Negative. 

TWO  CURRENCY  POLLS  AMONG  BANKERS       ...     133 

CURRENCY   REDEMPTION 145 

CONCLUSION 153 

THE  PRESS  ON  A  CENTRAL  BANK 161 

The  National  Press. 
The  Financial  Press. 


BIBLIOGRAPHY. 

List  of  authorities  consulted  in  the  preparation 
of  this  book: 

American  Economic  Association  Quarterly,  1909. 

Annals  of  the  American  Academy  of  Political  and  Social  Science, 

1908. 
Chamber  of  Commerce,  Annual  Report.     New  York,  1906-7. 
CoNANT,  Charles  A.     History  of  Modern  Banks  of  Issue.     1909. 
Dunbar,   Charles    F.     Laws   of  the   United    States    relating  to 

Currency,  Finance  and  Banking.     1891. 
Hamilton,  Alexander.     Works  of.     12  vols.     1903. 
History  of  Banking  in  all  the  Leading  Nations.    4  vols.      Edited 

by  the  editor  of  the  Journal   of   Commerce.     New    York. 

1896. 
Knox,  John  J.     History  of  Banking. 
MoRAWETZ,  Victor.     The  Banking  and  Currency  Problem  in  the 

United  States.     1909. 
NoYES,  Alexander  D.     Forty  Years  of  American  Finance.     1909. 
Practical  Problems  in  Banking  and  Currency.    Edited  by  Walter 

Henry  Hull.     1907. 
Straker,  F.     The  Money  Market.    London,  1904. 
White,  Horace.     Money  and  Banking.     1895. 

The  writer  consulted,  in  addition,  many  official 
documents  and  leading  financial  publications, 
both  American  and  foreign;  magazine  and  news- 
paper articles  by  various  writers;  well  considered 
editorials  from  leading  newspapers  and  financial 
publications;  and  addresses  and  interviews  by 
prominent  financiers — American  and  foreign — 
extending  over  several  years,  entirely  too  numer- 
ous to  mention  specifically. 


Preface 

In  this  little  book  the  writer  hopes  to  place 
before  the  reader  a  concise  embodiment  of  rele- 
vant fact  and  information  of  educational  value  in 
the  pending  central  bank  controversy. 

To  eliminate  the  non-essentials  and  set  down 
the  concrete  and  practical  has  been  his  aim.  To 
him  these  are:  The  defects  in  our  existing  cur- 
rency system;  the  functions  of  a  central  bank; 
the  "plans"  which  have  been  proposed;  the  op- 
posing arguments  on  the  central  bank  issue;  a 
sketch  of  the  leading  foreign  central  banking 
systems  and,  likewise,  of  the  first  and  second  bank 
of  the  United  States;  the  question  of  currency 
redemption;  and  some  gleaning  of  the  state  of 
banking  and  of  public  opinion  on  the  proposed 
central  institution. 

In  other  words,  he  has  endeavored  to  help  the 
reader  to  answer  the  queries :  What  is  a  central 
bank?  Is  it  a  good  thing  for  this  country?  How 
may  it  be  organized?  What  do  the  people  think 
of  it?    If  his  effort  serve  to  enlighten  the  reader 


in  any  degree,  his  task  will  not  have  been  in  vain 
and  he  will  be  amply  repaid  for  having  assumed 
an  undertaking  for  which  he  had  no  guide,  and 
which  has  been  completed  in  moments  free  from 
pressing  editorial  duties. 

To  Mr.  Walter  H.  Barrett,  managing  editor  of 
The  Wall  Street  Sivmmainj,  whose  confidence 
in  the  writer  through  many  years  mainly  in- 
spired him  to  this  task,  his  indebtedness  for 
many  helpful  suggestions  is  gratefully  acknowl- 
edged. And  to  Mr.  Henry  Meyers  and  Mr.  F. 
Horace  Giguere,  of  the  Hamilton  Press,  for 
courtesies  extended  while  the  book  was  in  press, 
the  writer  records  his  appreciation  and  thanks. 


ROBERT  EMMETT  IRETON. 


40  Stone  Street,  New  York, 
December  6,  1909. 


A  CENTRAL  BANK 


OUR  CURRENCY  PROBLEM. 

That  we  have  a  currency  problem  on  our 
hands  every  one  knows,  but  how  we  are  to  solve 
it  no  one  knows.  We  have  a  currency  system 
unlike  that  of  any  other  civilized  country,  and 
although  we  have  known  for  forty  years  that  it 
was  inadequate  and  dangerous,  we  have  not  suc- 
ceeded in  improving  it.  Its  latest  arraignment 
fell  from  the  lips  of  the  President,  in  his  address 
in  Boston  on  the  night  of  September  14,  1909, 
when  he  said: 

"It  is  certain  that  our  banking  and  monetary  system  is  a 
patched-up  affair  which  satisfies  nobody,  and  least  of  all  those 
who  are  clear-headed  and  have  a  knowledge  of  what  a  financial 
system  should  be." 

To  give  us  a  serviceable  financial  system  is, 
accordingly,  the  problem  of  the  hour,  and  before 
attempting  to  discuss  a  remedy  a  brief  review  of 
the  present  system  may  be  helpful. 

We  have  currency  of  many  kinds:  Gold  cer- 
tificates, representing  an  equivalent  of  gold  coin, 
or  bullion,   in   the  Treasury;   silver  certificates, 

1 


A    CENTRAL   BANK 

representing  an  equivalent  amount  of  coined  sil- 
ver in  the  Treasury;  Treasury  notes  of  1890, 
issued  for  the  purchase  of  silver  bullion  and  se- 
cured by  that  metal  in  the  Treasury;  United 
States  (legal  tender)  notes;  national  bank  notes, 
and  gold  and  silver  coin.  Every  sound,  scientific 
currency  system  is  established  on  a  gold  standard 
basis.  By  the  act  of  March  14,  1900,  the  first  sec- 
tion of  vs^hich  reads: 

"That  the  dollar  consisting  of  twenty-five  and  eight-tenths 
grains  of  gold  nine-tenths  fine,  as  established  by  section  thirty- 
five  hundred  and  eleven  of  the  Revised  Statutes  of  the  United 
States,  shall  be  the  standard  unit  of  value,  and  all  forms  of 
money  issued  or  coined  by  the  United  States  shall  be  main- 
tained at  a  parity  of  value  with  this  standard,  and  it  shall  be 
the  duty  of  the  Secretary  of  the  Treasury  to  maintain  such 
parity." — 

the  United  States  adopted  the  gold  standard, 
which,  interpreted  in  its  real  sense,  means  that 
the  Government  pledged  itself  to  redeem  all  of 
its  obligations  in  gold.  Section  two  of  this  stat- 
ute provides: 

"That  United  States  notes  and  Treasury  notes  issued  under 
the  Act  of  July  fourteenth,  eighteen  hundred  and  ninety,  when 
presented  to  the  Treasury  for  redemption  shall  be  redeemed 
in  gold  coin  of  the  standard  fixed  in  the  first  section  of  this 
Act,  and  in  order  to  secure  the  prompt  and  certain  redemption 
of  such  notes  as  herein  provided  it  shall  be  the  duty  of  the 
Secretary  of  the  Treasury  to  set  apart  in  the  Treasury  a  reserve 
fund  of  one  hundred  and  fifty  million  dollars  in  gold  coin  and 
bullion,  which  fund  shall  be  used  for  such  redemption  purposes 
only." 

2 


OUR  CURRENCY   PROBLEM 

Eliminating  from  present  consideration  our 
gold  coin  and  gold  certificates,  which  are  ex- 
changeable at  par  in  all  countries,  since  gold  is 
the  standard  of  value,  our  currency  from  its  mot- 
ley variety  would  be  a  source  of  immeasurable 
discontent  and  anxiety  were  it  not  for  the  faith 
of  the  public  in  the  Government's  promise  to  re- 
deem in  gold  its  silver  certificates,  its  United 
States  notes,  and  its  Treasury  notes.  We  have, 
approximately,  $346,000,000  outstanding  in 
United  States  notes  and  cannot  reduce  their  vol- 
ume. Whenever  they  are  presented  to  the  Treas- 
ury for  redemption  in  gold  they  are  not  cancelled 
but  must  be  reissued  immediately  to  return  again 
and  again  for  gold.  This  gold-extracting  process 
has  been  designated  "the  endless  chain."  The 
Treasury  has  paid  out  more  gold  for  these  notes 
than  their  total  amount,  yet  they  still  circulate  to 
deplete  its  reserves.  Four  bond  issues,  amount- 
ing to  $265,000,000  have  been  necessary  to  pre- 
serve the  redemption  fund  and  maintain  the 
credit  of  these  notes;  and  through  the  re- 
demption of  legal  tenders,  the  gold  in  the 
Treasury  fell  to  $41,340,181,  in  February,  1895. 
At  that  time  the  New  York  Sub-Treasury  could 
not  have  redeemed  them  a  day  longer,  and 
financiers  and  business  men  expected  a  suspen- 
sion of  specie  payments.    The  Government's  in- 

3 


A   CENTRAL   BANK 

ternational  bond-syndicate  operation,  however, 
averted  the  threatened  suspension.  That  danger, 
nevertheless,  is  a  continuing  one;  and  for  that 
reason,  and  because  our  silver  currency  is  fifty 
per  cent,  fiat,  and  as  such  unfitted  for  the  reserves 
of  a  gold-standard  nation,  we  will  never  have 
the  "serviceable  financial  system,"  of  which  the 
President  spoke,  until  we  succeed  in  retiring  our 
legal  tender  and  silver  certificates,  and  in  estab- 
lishing an  adequate  gold  reserve. 

Of  the  enumeration  aforementioned,  national- 
bank  notes  remain  for  discussion.  While  this 
circulation  is  safe  it  is  not  responsive  to  the  de- 
mands of  trade.  This  follows  from  its  relation  to 
the  national  debt.  When  the  finances  and  credit 
of  the  nation  were  at  a  low  ebb  during  the  Civil 
War,  Secretary  Chase  conceived  the  grand  idea 
of  a  national-bank  currency  secured  by  deposits 
of  Government  bonds  with  the  Secretary  of  the 
Treasury.  That  is  to  say,  the  national  banks 
were  to  be  empowered  to  issue  circulating  notes 
provided  they  purchased  bonds  of  the  Govern- 
ment and  deposited  them  in  the  Treasury  as  col- 
lateral against  the  notes.  That  principle  is  in 
force  to-day;  hence,  it  may  be  seen  at  a  glance, 
our  national-bank  currency  represents  a  fixed 
investment  in  bonds,  which  has  no  relation  what- 
ever to  the  needs  of  business.    If  bonds  are  cheap 

4 


OUR  CURRENCY   PROBLEM 

the  banks  buy  them  and  take  out  circulation,  not 
because  it  is  needed,  but  because  the  investment 
pays.  This  leads  to  a  currency  expansion.  If 
bonds  are  high  and  a  profit  may  be  made  in  sell- 
ing them,  a  national  bank  will  sell  its  bonds, 
which,  in  turn,  leads  to  a  currency  contraction. 
In  neither  case  does  the  commercial  demand  of 
the  country  obtain  recognition.  Bond  specula- 
tion is  the  basis  of  the  national-bank  circula- 
tion. 

The  demands  of  trade  vary  with  the  seasons, 
being  heaviest  usually  in  Autumn,  when  harvest- 
mg  and  moving  the  crops  are  under  way.  As 
our  crops  are  the  basic  wealth  of  the  nation  it  is 
of  the  utmost  importance  that  they  be  properly 
financed.  Accordingly,  every  Autumn  from  the 
bank  vaults  of  the  country  about  $200,000,000,  in 
lawful,  or  reserve,  money,  finds  its  way  to  the 
agricultural  districts  to  pay  current  demands, 
where  checks  are  seldom,  if  ever,  used.  The  sec- 
tions of  the  country  supplying  this  great  sum 
have  their  credits  curtailed  by  the  consequent 
weakening  of  their  reserves,  from  which  this 
money  is  taken ;  and  as  a  result  high  interest 
rates  follow  this  contraction.  When  the  market- 
ing of  the  agricultural  products  is  over  the  money 
returns  to  the  reserve  centres  once  more,  and 
with  this  sudden  expansion  interest  rates  drop 

5 


A   CENTRAL   BANK 

and  speculation  speedily  follows,  sometimes  to 
unreasonable  and  dangerous  lengths. 

Since  it  is  well  established  that  one  dollar  in 
a  bank  reserve  is  ample  protection  for  an  indebt- 
edness of  four  dollars  to  depositors,  the  with- 
drawal of  the  $200,000,000  annually  for  the  crop 
requirements  leads  to  the  contraction  of  $800,- 
000,000,  or  more,  in  loans  and  deposits.  The 
crop  demand  is  for  currency — not  credit;  and 
to  supply  it  the  banks  have  to  withdraw  the 
currency  from  their  reserves,  and  call  their  loans. 
Thus,  the  lending  power  of  the  banks  is  curtailed 
by  close  to  a  billion  dollars,  which  causes  a  strin- 
gency in  money,  leads  to  abnormal  fluctuations 
in  interest  rates,  prevents  borrowers  from  obtain- 
ing necessary  accommodations,  and  severely  han- 
dicaps business.  The  national-bank  note  is  not 
money;  it  is  merely  the  bank's  promissory  note, 
intended  to  serve  as  a  medium  of  exchange,  and 
cannot  be  counted  as  money  in  a  national  bank's 
reserves.  It  can  circulate  as  money,  of  course, 
and  does  so,  in  fact..  But  in  the  annual  contin- 
gency under  discussion,  owing  to  the  necessity 
of  purchasing  bonds  prior  to  its  issuance,  an  in- 
crease in  its  volume  is  out  of  the  question;  for 
that  is  dependent  upon  the  price  of  the  bonds, 
as  aforementioned,  and  not  upon  commercial 
necessity.    Never  once  in  the  history  of  national- 

6 


OUR  CURRENCY   PROBLEM 

bank  currency  did  the  volume  of  these  notes 
show  a  tendency  to  increase  in  Autumn;  nor  to 
decrease  in  periods  of  currency  redundancy. 

No  other  nation  maintains  a  system  which 
results  in  such  drafts  on  its  banking  reserves 
and  reductions  in  its  banking  credit.  The  yearly 
autumnal  stringency  is  a  mild  form  of  panic;  in 
1907,  we  reaped  the  fruits  of  the  system  in  full, 
when  currency  payments  were  suspended.  This 
panic-breeding  process  is  simple.  When  a  na- 
tional bank's  reserves  are  impaired  it  must  not 
increase  its  loans,  says  the  law,  but  must  restore 
them  within  thirty  days.  To  restore  its  reserves 
the  bank  must  decrease  its  loans.  The  money  to 
pay  these  loans  is  obtained  at  a  high  interest  rate 
by  the  debtors  from  other  hanks,  which  de- 
creases their  reserves  and  forces  them,  in  turn, 
to  increase  their  demands  on  borrowers.  Should 
anything  arise,  at  such  a  juncture,  to  excite  the 
public,  a  full-blown  panic  is  the  usual  conse- 
quence, and  the  trouble  only  ends  when  business 
is  utterly  prostrated  and  when  borrowers  are 
exhausted. 

"Sound  and  correct,  instead  of  artificial  and 
political,  legislation  in  our  finances  is  imperative," 
said  Mr.  Joseph  T.  Talbert,  former  president  of 
the  Chicago  Clearing  House  Association,  and 
vice-president  of  the  National  City  Bank,  New 

7 


A   CENTRAL   BANK 

York,  in  welcoming  the  delegates  to  the  American 
Bankers'  convention,  in  Chicago,  on  September 
14,  1909.  "It  is  discreditable  not  to  say  disgrace- 
ful, that  we  have  not  a  currency  system  that  will 
meet  every  legitimate  need  of  business.  There 
are  no  valid  reasons  why  we  have  not  such  a  sys- 
tem. After  recent  experience  failure  to  perfect 
the  currency  and  place  it  upon  a  basis  as  sound 
as  that  of  any  other  country  in  the  world  would 
be  a  national  shame." 

A  real,  serviceable  currency  system  is  one 
which  increases  during  periods  of  greatest  ac- 
tivity and  contracts  during  periods  of  inactivity. 
By  this  property  is  meant  its  elasticity.  It  owes 
its  origin  and  value  to  the  wealth  of  a  country 
in  process  of  exchange.  It  is  then  the  instrument 
of  business,  and  is  developed  and  governed  by  it. 
When  surrounded  by  the  proper  requirement 
for  redemption  in  gold,  bank  notes  originating 
in  response  to  the  demands  of  business  are  self- 
regulating,  because  they  return  to  the  source  of 
issuance  when  the  quantity  in  circulation  be- 
comes excessive.  Such  a  currency  is  natural 
bank  currency  not  national  bank  currency.  To 
illustrate:  X,  a  customer  of  a  bank,  desiring  to 
purchase  certain  commodities,  gives  his  note  to 
the  bank  for  $10,000,  and  receives  that  amount 
in  the  bank's  own  notes — which  are,  in  effect,  its 

8 


OUR  CURRENCY   PROBLEM 

promissory  notes — instead  of  the  usual  credit  on 
the  bank's  books  for  the  proceeds  of  the  note. 
He  makes  his  purchases  giving  in  payment  to 
the  parties  with  whom  he  trades  the  notes  issued 
by  the  bank.  Soon  he  sells  his  commodities  and 
with  the  proceeds  takes  up  his  note  at  the  bank. 
In  the  meantime,  the  bank's  own  notes,  put  in 
circulation  by  X,  come  home  to  the  bank  for 
redemption,  and  are  paid  out  of  the  money  given 
it  by  X.  The  bank  then  cancels  the  notes  and 
the  transaction  is  completed.  The  bank  earned 
its  discount  and  X  his  profit,  without  the  pur- 
chase of  Government  bonds;  and  as  the  number 
of  the  bank's  transactions  increase  or  diminish 
so  will  the  volume  of  its  notes,  responding  accur- 
ately to  the  fluctuations  in  business. 

In  the  case  outlined,  the  bank  note  is  abso- 
lutely safe,  and  is  an  instrument  by  which  the 
credit  of  the  bank  may  be  made  available  to  a 
borrower  for  purposes  of  trade.  Our  national- 
bank  currency,  on  the  other  hand,  is  not  based 
on  the  credit  of  the  bank  but  on  capital  actually 
invested  in  bonds,  equal  to  the  note  itself,  as  a 
condition  precedent  to  its  issuance.  Hence,  its 
rigidity  and  unresponsiveness  to  commercial  de- 
mands. Another  defect  in  our  system,  until  quite 
recently,  was  the  withdrawal  from  the  channels 
of  trade  and  the  hoarding  of  public  moneys — the 

9 


A   CENTRAL   BANK 

proceeds  of  taxation — in  the  vaults  of  the  pubHc 
Treasury.  The  average  amount  during  forty 
years  so  kept  under  lock  and  key  by  the  Treas- 
ury has  been  placed  at  more  than  $50,000,000. 
Had  this  sum  been  distributed  among  the  na- 
tional banks  of  the  country  instead,  their  credit 
accommodations  to  the  people  would  have  been 
enlarged  about  $200,000,000.  This  hoarding  of 
public  funds  in  the  Treasury  v^as  an  economic 
waste  and  a  colossal  blunder,  and  the  retention 
of  the  Sub-Treasury  system  is  still  less  defen- 
sible. 

Former  Secretary  of  the  Treasury  Lyman  J. 
Gage  tells  of  a  conversation  he  once  had  with  a 
Minister  of  Finance  of  one  of  the  most  advanced 
and  most  securely  established  South  American 
republics.  As  a  side-light  on  our  system  of 
finance  it  is  of  value.  In  Mr.  Gage's  own  words, 
the  story  runs: 

"You  have,"  I  asked  him,  ''some  sort  of  bank- 
ing system  in  your  country?" 

''Oh,  yes.  We  have  a  system  operating  under 
federal  authority,  governed  by  federal  law,  and 
subject  to  inspection  and  control  by  federal 
agents.  We  have  eight  large  banks,  each  with 
several  branches,  so  that  all  sections  of  our  coun- 
try are  supplied  with  banking  facilities." 

"Why  do  you   allow  banks   with   branches? 

10 


OUR  CURRENCY   PROBLEM 

Why  not  make  them  entirely  independent  of  each 
other,  the  same  as  we  do?" 

''Well,  we  believe  that  a  fagot  of  many  twigs 
is  safer  and  stronger  than  the  separated  twigs 
could  be.  It  has  worked  well.  We  have  had  no 
bank  failure  for  many  years/' 

"Do  they  issue  notes  to  circulate  as  money?" 

"Yes,  limited  in  amount  by  their  relation  to 
capital,  and  by  the  percentage  of  specie  which 
they  are  required  to  carry  against  note  issues." 

"Why  do  you  not  make  the  banks  secure  their 
notes,  as  we  do,  by  the  pledge  of  your  govern- 
ment bonds?  By  requiring  them  to  do  this,  you 
would  enlarge  the  market  for  your  securities, 
and  thus  lower  the  rate  of  interest  on  your  gov- 
ernment debt.  At  the  same  time  you  would 
make  the  bank  note  absolutely  secure  to  the 
holder.^' 

"Yes,"  he  replied,  "but  this  apparent  ad- 
vantage might  prove  to  be  fallacious  in  the  end. 
In  the  first  place,  we  consider  the  bank  currency 
entirely  safe  to  the  holder  as  it  now  is.  In  the 
next  place  to  require  what  you  suggest  would 
involve  a  tie-up  of  so  much  of  the  bank  capital, 
all  of  which  we  think  ought  to  be  available  to 
the  uses  of  industry  and  trade." 

"Again,"  he  added,  "we  think  general  indus- 
tries and  business  affairs  should  be  involved  to 

11 


A   CENTRAL   BANK 

the  smallest  degree  possible  with  government 
finances.  If  we  should  become  engaged  in  a  pro- 
tracted and  exhausting  war,  the  price  of  our 
bonds  might  fall.  The  value  of  the  securities 
upon  which  the  safety  of  the  bank  note  was  sup- 
posed to  rest  thus  declining,  distrust  and  panic 
might  set  in  at  the  most  inopportune  time — an 
inopportune  time  because  it  is  precisely  in  time 
of  war  that  the  government  must  make  the 
severest  financial  exactions  from  its  people.  It 
is  therefore  doubly  important  that  general  busi- 
ness should  be  protected  from,  rather  than  ex- 
posed to,  the  perturbations  in  government 
finances  when  the  latter  are  under  stress  and 
strain.  It  is  just  then  that  we  need  the  greatest 
strength  and  the  most  steadiness  in  the  personal 
afifairs  of  our  people,  for  it  is  from  them  that  we 
must  draw  resources  and  supplies." 

"One  more  question,"  I  urged.  "You  have, 
I  know,  revenues  somewhat  in  excess  of  ex- 
penditures, and  necessarily  carry  a  working  bal- 
ance on  hand.  Where  do  you  keep  this  cash,  in 
your  own  strong  boxes,  as  we  do?" 

"No,"  he  answered,  "we  are  a  small  country, 
not  rich,  like  you.  If  we  locked  up  this  money, 
amounting  sometimes  to  thirty  millions  of  dol- 
lars, it  would  be  an  economic  crime.  We  de- 
posit our  idle  funds  among  the  eight  banks,  and 

12 


OUR  CURRENCY   PROBLEM 

they  serve  as  an  important  aid  to  industrial 
activities,  while  they  are  always  subject  to  our 
call  when  needed." 

The  system  so  outlined  by  the  South  Ameri- 
can diplomat  shows  a  clear  perception  of  the 
economic  relationship  which  should  prevail  be- 
tween government  finances  and  the  commercial 
and  industrial  affairs  of  a  country.  In  the  United 
States  that  relationship  is  too  intimate,  too  in- 
juriously close.  Commerce  is  too  dependent 
upon  Treasury  operations  in  this  country,  and  to 
that  fact  can  be  ascribed  largely  periodic  inter- 
ferences with  its  progress,  pending  the  settle- 
ment of  some  important  fiscal  measure  or  policy. 


13 


A  CENTRAL  BANK'S  FUNCTIONS. 

It  is  far  easier  to  describe  the  workings  and 
advantages  of  a  central  bank  than  to  define  it. 
Comprehensively  embodied,  however,  we  may 
say  that  it  is  a  great  note-issuing  institution  in 
which  is  vested,  to  an  extraordinary  degree,  the 
financial  responsibility  of  a  nation,  in  that:  its 
methods  enable  it  to  supply  at  all  times  an  elastic 
currency,  varying  automatically  with  the  needs 
of  the  country;  to  maintain  an  adequate  gold 
supply  through  its  regulation  of  foreign  ex- 
change, and  to  conserve  and  protect  the  coun- 
try's metallic  reserves;  to  control  the  money 
market  by  its  regulation  of  the  discount  rate;  and 
to  serve  as  a  sanctuary  for  the  banks  in  periods 
of  threatened  danger.  All,  or  most,  of  these 
functions  the  great  central  banks  of  Europe  per- 
form, and  by  their  means  financial  disturbances, 
currency  famines,  and  business  reversals,  which 
seem  to  visit  us  with  a  regular  periodicity,  are 
practically  unknown  to  the  people  of  Europe. 

Our  public  Treasury  is  the  only  institution  in 
this  country  at  all  similar  in  scope  to  a  central 
bank,  but  with  its  great  resources,  which,  on  No- 
vember 1,  1909,  were  as  follows:  gold,  $795,205,- 
489,  against  which  certificates  of  deposit  were  in 
circulation;   silver,  $481,794,889,   against   which 

15 


A   CENTRAL   BANK 

silver  certificates  were  in  circulation;  treasury 
notes,  $4,021,535,  secured  by  bullion  in  the 
Treasury;  United  States  notes  (legal  tender), 
$342,179,962;  and  $685,996,112,  represented  by 
bonds  of  the  Government  deposited  w^ith  the 
Treasurer  to  secure  national-bank  circulation,  it 
cannot  do  for  this  country  what  the  European 
central  banks  do  for  theirs. 

The  great — perhaps  the  distinguishing — char- 
acteristic of  the  central  bank  is  its  power  to  re- 
discount commercial  paper  for  other  banks. 
Upon  this  function  the  process  of  currency  ex- 
pansion and  contraction  in  European  countries 
is  strictly  based.  All  that  a  bank  in  need  of  cur- 
rency in  Europe  has  to  do  is  to  take  its  receiv- 
ables to  the  central  institution  and  rediscount 
them.  Mr.  A.  Barton  Hepburn,  president  of  the 
Chase  National  Bank  of  New  York,  and  former 
Controller  of  the  Currency,  in  a  recent  magazine 
article  presents  a  concrete  illustration  of  the 
working  of  the  French  law  in  this  respect.  He 
says : 

"When  in  Paris  recently,  I  called  at  the 
Credit  Lyonnais,  one  of  the  very  large  and  strong 
banks  of  continental  Europe.  In  conversation 
with  one  of  its  representatives,  he  handed  me  a 
statement  of  the  bank's  resources  and  liabilities. 
After  examining  the  same  somewhat  critically, 

16 


A   CENTRAL  BANK'S   FUNCTIONS 

and  having  in  mind  its  large  aggregate  resources 
— over  two  billion  francs — I  remarked,  'You  owe 
a  very  large  amount  of  money/ 

"'Yes;  but  we  could  pay  it  very  easily,  if 
called  upon  to  do  so,'  he  replied. 

"  'Certainly;  but  what  period  of  time  would 
you  require  to  pay  your  liabilities?  How  soon 
could  you  do  so?' 

"  'It  would  require  no  longer  time  than  is 
necessary  to  perform  the  physical  labor  of  mak- 
ing payment.' 

"  'Well,  let  us  see;  your  liabilities  to  the  gen- 
eral public — what  you  owe  to  others  than  your 
stockholders — amount  approximately  to  $400,- 
000,000.  Now  tell  me,  please,  just  how  you  would 
obtain  currency  with  which  to  pay  the  same,  if 
presently  called  upon  to  do  so.' 

"  'We  should  first  make  use  of  our  cash  on 
hand  and  balances  with  correspondent  banks 
subject  to  check.  We  should  utilize  our  foreign 
exchange,  which  has  a  ready  market;  after  this 
application,  the  unpaid  balance  would  be  much 
less  than  our  commercial  paper  on  hand.  We 
should  take  a  sufficient  amount  of  this  paper  to 
the  Bank  of  France,  discount  the  same,  and  re- 
ceive currency  with  which  to  pay  the  balance.' 

"  'But  suppose  the  Bank  of  France  declined 
to  discount?' 

17 


A   CENTRAL   BANK 

"  'It  cannot  decline  to  discount.' 

"  'Is  there  any  law  which  compels  the  bank 
to  discount  paper  offered?'  I  asked. 

"  'There  is  no  statute  law,  but  the  law  of  the 
bank's  being  compels  it  to  discount  good  paper 
when  required  to  do  so.  That  is  what  the  bank 
was  created  for;  it  is  an  unwritten  law,  recog- 
nized alike  by  the  bank  and  public,'  he  replied." 

From  this  it  is  clearly  inferable  that  the  es- 
tablishment of  a  central  bank  in  this  country 
would  have  averted  the  failure  of  several  bank- 
ing institutions,  and  greatly  mitigated  the  rigors 
of  our  panic,  two  years  ago.  Had  the  national 
banks  been  enabled  to  rediscount,  through  a  cen- 
tral bank,  their  millions  of  first-class  commercial 
paper,  which  remained  in  their  vaults  as  so  much 
dead  weight,  obtaining  immediately  so  much 
currency  for  slow  assets,  the  currency  famine, 
the  bank  runs,  and  the  hoarding  epidemic  of  that 
period  would  not  have  followed;  or,  if  they  did 
follow,  at  least,  to  nothing  like  their  actual  ex- 
tent. Had  the  Knickerbocker  Trust  Company, 
of  New  York  City,  been  able  to  hypothecate  its 
good  securities  with  a  central  bank,  it  could  have 
obtained  all  the  relief  necessary  and  need  not 
have  closed  its  doors.  From  a  run,  following  the 
failure  of  the  Leipziger  Bank  in  Germany,  some 
years  ago,  one  of  the  largest  banks  in  the  Father- 

18 


A   CENTRAL  BANK'S   FUNCTIONS 

land  was  saved  by  the  rediscounting  facilities  of 
the  Imperial  Bank  of  Germany. 

Contrast  the  situation  when  our  7,000  isolated 
national  banks  hear  the  rumblings  of  an  ap- 
proaching upheaval.  With  no  responsible  leader 
to  take  command,  no  powerful  hand  at  the  helm, 
each  of  our  banks  acts  on  the  principle  of  the 
"devil  take  the  hindmost."  Intent  only  on  its 
own  affairs,  it  never  gives  a  thought  to  its  rela- 
tion to  the  system  as  a  whole — demonstrating 
most  convincingly,  but  artlessly,  that  ive  have 
no  hanking  system.  Reserves  are  hurriedly 
amassed,  accommodations  are  refused,  loans  are 
called  when  they  should  be  extended,  and  hoard- 
ing, confusion,  and  business  paralysis  follow. 
Money  is  piled  up  in  reserves  while  trade  lan- 
guishes, and  clearing-house  certificates  take  the 
place  of  currency,  domestic  exchange  is  dis- 
located, and  insolvencies  follow  through  ignorant 
refusals  of  credit.  Under  a  central  bank,  with 
an  irreproachable  credit,  all  the  currency  re- 
quired may  be  obtained  under  the  redis- 
counting power  aforementioned,  and  such  ex- 
tremities as  those  of  this  country  two  years  ago 
averted. 

In  this  country  we  have  no  concentrated  au- 
thority to  govern,  or  direct,  in  the  face  of  com- 
ing danger,  because  our  system  is  utterly  one  of 

19 


A   CENTRAL   BANK 

isolation.  In  Europe,  under  each  central  bank, 
the  system  is  a  coherent  whole,  Europe  recog- 
nizes the  obvious  fact  that  a  country,  in  order 
to  transact  its  business,  must  have  a  sufficient 
cjuantity  of  the  tools  of  exchange,  and  the  Gov- 
ernments wisely  leave  the  issuing  function  to  the 
central  banks,  which  practically  limit  the  quan- 
tity of  their  note  issues  solely  by  the  needs  of 
business.  This  compels  them  to  maintain  ade- 
quate gold  reserves  to  preserve  the  credit  of  their 
notes;  and  when  notes,  thus  issued,  are  redeem- 
able in  gold  they  cannot  become  excessive.  On 
the  question  of  reserves,  sound  banking  judg- 
ment governs  in  Europe;  statutory  enactments 
control  in  this  country.  As  an  illustration  of  the 
validity  of  the  European  system,  and  of  the  con- 
fidence of  the  world  in  it,  when  the  Bank  of 
France  had  stopped  gold  payments  after  1870,  in 
order  to  husband  its  gold,  the  average  deprecia- 
tion of  its  notes  was  only  1^  per  cent.,  and  the 
highest  was  only  2^^  per  cent.  Nothing  could 
establish  more  satisfactorily  the  credit  of 
this  great  central  bank,  and  the  public  confi- 
dence in  the  wisdom  of  its  methods  of  adminis- 
tration. 

Credit  is  the  basis  of  business  everywhere, 
and  banks  are  the  instruments  by  which  this 
credit  is   created.      Europe   charges   her  central 

20 


A   CENTRAL  BANK'S   FUNCTIONS 

banks  to  create  the  enormous  volume  of  credit 
required  by  modern  enterprise  and  business 
activity,  through  the  conversion  of  commercial 
credit  into  currency.  They  are  the  better  enabled 
to  do  this  because  of  their  centralization  of  the 
country's  gold  reserves.  The  Bank  of  England, 
for  example,  is  the  custodian  of  all  the  reserves 
of  the  banks  of  that  country.  The  British  banker 
pursues  the  even  tenor  of  his  way,  conducting 
his  business  on  the  law  of  averages,  meeting  the 
daily  demands  for  cash  with  the  daily  deposits 
of  cash,  and  maintaining  on  hand  only  a  suffi- 
cient amount  of  till  money  to  meet  any  variation 
in  demand.  His  balance,  or  reserve,  is  in  the 
vaults  of  the  Bank  of  England  and  to  that  reser- 
voir he  goes  for  cash  in  times  of  need.  That  he 
never  does  so  in  vain  is  potentially  established  by 
the  procedure  of  the  bank  in  the  panic  of  1847, 
when  with  its  gold  reserve  at  less  than  £2,000,- 
000,  the  Charter  was  suspended,  and  the  bank 
was  authorized  to  increase  its  accommodation  to 
the  public  by  exceeding,  to  an  indefinite  extent, 
the  limit  fixed  for  the  issue  of  notes  not  secured 
by  gold.  The  effect  of  this  action  was  imme- 
diate and  complete,  and  the  mere  fact  that  the 
bank  was  empowered  to  exceed  the  limit  proved 
sufficient  to  allay  all  doubts  and  end  the  panic. 
Notes  which  had  been  hoarded  and  gold  which 

21 


A   CENTRAL   BANK 

had  been  put  away  in  safe  deposit  vaults  re- 
turned to  the  bank  and  soon  its  reserve  was  re- 
stored to  a  safe  basis. 

In  1857,  owing  to  reckless  over-trading  in 
England  and  the  effects  of  the  panic  in  this  coun- 
try, in  which  150  of  our  banks  suspended  pay- 
ment, the  bank's  gold  reserve  fell  below  £600,- 
000,  while  its  debt  on  bankers'  balances  was 
£5,500,000.  In  this  crisis  the  Charter  was  again 
suspended  and  notes  were  issued  to  the  extent 
of  £2,000,000  beyond  the  normal  limit,  without 
any  gold  to  secure  them.  The  discount  rate  was 
raised  to  10  per  cent.  "This  took  place  on  No- 
vember 12,"  says  Mr.  F.  Straker,  in  his  work 
The  Money  Market,  "and  at  once  had  the  effect 
of  quieting  the  public  mind.'^  A  third  suspen- 
sion of  the  Charter  followed  in  1866.  The  Civil 
War  in  America,  heavy  speculation  in  England, 
the  disorganization  of  the  British  cotton  indus- 
tries owing  to  the  war,  and  the  failure  of  Over- 
end,  Gurney  and  Company  for  upwards  of  £10,- 
000,000  on  May  10,  1866,  precipitated  a  crisis  the 
next  day — "Black  Friday" — that  had  been  gath- 
ering force  for  months.  General  failure  seemed 
imminent,  when  on  that  very  afternoon  the 
Charter  was  again  suspended  and  "calm  began 
to  take  the  place  of  mania."  The  bank  extended 
accommodations  on  that  day  to  an  amount  ex- 

22 


A   CENTRAL  BANK'S   FUNCTIONS 

ceeding   £4,000,000,  and  the  discount  rate  was 
raised  to  10  per  cent. 

The  part  played  by  the  Bank  of  England  in 
averting  a  panic  in  1890,  on  the  suspension  of 
Baring  Brothers  and  Company,  in  which  the 
Bank  of  France  assisted,  is  even  a  more  striking 
illustration  of  the  power  of  the  central  bank  to 
save  the  money  market.  Learning  on  Novem- 
ber 8,  1890,  that  the  Barings  were  about  to  sus- 
pend, with  liabilities  of  £21,000,000,  Mr.  Wil- 
liam Lidderdale,  Governor  of  the  Bank  of  Eng- 
land, took  decisive  steps  to  save  the  business 
community.  Although  offered  the  benefit  of  the 
suspension  of  the  Charter  by  the  Chancellor  of 
the  Exchequer,  Mr.  Lidderdale  decided  not  to 
adopt  that  remedy,  lest  its  effect  might  lead  to 
undue  alarm,  and  announced  within  a  few  days 
that  the  Bank  of  England  would  provide  for  all 
the  liabilities  of  the  Barings,  the  bank  being 
indemnified  against  loss  by  a  group  of  guarantors 
comprising  the  greatest  institutions  in  Great 
Britain.  Joint-stock  banks  in  London  and  Scot- 
land and  leading  provincial  banks  had  bound 
themselves  in  the  sum  of  £15,000,000,  for  three 
years,  "to  make  good  to  the  Bank  of  England" 
any  loss  that  might  appear  after  the  liquidation 
of  the  affairs  of  the  Barings  had  been  completed 
as  far  as  practicable.     Mr.  Lidderdale  borrowed 

23 


A   CENTRAL   BANK 

£3,000,000  in  gold  from  the  Bank  of  France,  on 
the  security  of  British  Exchequer  bonds,  and 
with  sums  borrowed  elsewhere  £5,000,000  was 
available  for  note  issues  if  required.  The  Gov- 
ernor did  not  even  raise  the  interest  rate,  but 
maintained  it  at  6  per  cent.,  the  rate  prevailing 
before  the  Barings'  suspension.  Liquidation  fol- 
lowed in  an  orderly  manner,  and  a  panic  was 
averted.  So  well  did  the  bank  administer  the 
affairs  of  the  failed  firm,  liabilities  totaling 
£30,313,000  were  reduced  on  March  16,  1893,  to 
£4,558,813,  with  assets  on  hand  estimated  at 
£4,908,935,  indicating  an  apparent  surplus  of 
£350,122.  The  cost  of  the  French  loan,  in  addi- 
tion to  interest,  was  £100,000. 

The  Bank  of  England  is  the  oldest  of  the 
central  banks,  but  not  the  most  scientific  or  auto- 
matic in  its  movements.  The  Bank  of  France 
and  Imperial  Bank  of  Germany  are  so  organized 
that  no  suspension  of  the  law  of  their  being  is 
necessary  under  such  circumstances  as  those  re- 
counted. But,  nevertheless,  the  Bank  of  Eng- 
land's organization  as  a  great  reserve  centre  is 
indicated  by  its  services  on  the  occasions  referred 
to,  and  its  capability  in  restoring  confidence, 
persuasively  shows  what  responsible  leadership 
means  to  a  banking  system  in  a  crisis.  Just  as 
soon  as  financial  trouble  begins  to  brew,  the  ab- 

24 


A   CENTRAL  BANK'S   FUNCTIONS 

sorbing  thought  in  the  business  mind  is,  "Will 
there  be  enough  money  to  go  around?"  When 
it  is  known  that  money  can  always  be  had  at  a 
pj'ice,  the  probability  of  a  crisis  developing  into 
a  panic  vanishes.  With  a  central  institution  em- 
powered to  grant  this  reassurance  the  fear  that 
"there  is  not  enough  to  go  around"  passes  from 
the  public  mind. 

Concentration  of  the  banking  reserves  of  a 
country  is  essential  to  efficiency,  economy,  and 
adequate  business  accommodation.  Carrying 
the  reserves  of  a  country,  a  central  bank  can  meet 
every  demand  for  currency,  whether  from  the 
banks  or  the  public;  while  if  the  aggregate  re- 
serves so  held  are  scattered  among  7,000  isolated 
units  they  practically  guarantee  safety  to  no  one 
when  that  is  needed.  Indeed,  in  the  recent  panic 
we  saw  some  of  them  refusing  accommodations 
while  boasting  of  their  repleted  reserves.  Re- 
serves amassed  and  administered  by  a  central 
authority  are  more  economically  managed  than 
when  entrusted  to  several  thousand  institutions 
in  small  amounts.  By  the  latter  method  too 
much  working  capital  is  held  up  to  the  detriment 
of  business.  By  the  former  it  can  be  made  to 
support  the  commercial  needs  of  a  whole  nation, 
and  to  respond  to  a  call  for  currency  in  any  sec- 
tion at  any  time.     The  test  of  a  banking  system 

25 


A   CENTRAL   BANK 

comes  in  foul  weather,  and  ours  completely  broke 
down  when  subjected  to  a  strain  two  years  ago. 
Organized  as  it  is,  the  result  could  not  have  been 
otherwise,  for  there  is  no  concentration  or 
cohesion  to  strengthen  it;  no  directing  or  con- 
trolling influence  to  guide  it.  The  central  bank 
meets  a  crisis  with  a  very  different  code.  It  be- 
lieves, in  such  an  event,  that  loans  and  accommo- 
dations should  be  made,  as  largely  as  the  public 
asks,  on  all  good  security,  at  a  very  high  rate  of 
interest,  and  puts  its  belief  into  execution  by 
establishing  such  a  rate.  This  checks  unreason- 
able timidity  by  fining  it  heavily  and  prevents 
borrowing  from  unnecessary  precaution.  A  cen- 
tral bank  diffuses  the  idea  that  although  money 
may  be  dear,  still  money  can  be  had.  And  this 
brings  back  the  hoarded  notes  and  gold  for  de- 
posit, ending  periods  of  temporary  distress,  and 
restoring  confidence  and  reserves. 

So  long  as  a  bank  can  supply  currency  to 
depositors  and  creditors  in  case  of  a  run,  it  is 
practically  in  no  danger;  because  banking  ex- 
perience teaches  that  after  a  certain  stage  is 
reached  the  depositors  and  debtors  merge.  This 
acts  as  a  brake;  for,  when  the  depositors  and 
debtors  of  a  bank  are  one  and  the  same,  the 
probability  of  a  depositor  withdrawing  his  funds, 
because  of  loss,  while  the  bank  holds  his  paper 

26 


A   CENTRAL  BANK'S   FUNCTIONS 

for  a  larger  sum  is  altogether  removed.  But, 
apart  altogether  from  this  theory,  suspension  is 
next  to  impossible  in  the  case  of  the  European 
joint-stock  banks,  for  the  central  bank,  through 
its  rediscounting  powers,  stands  ready  to  furnish 
currency  to  meet  all  demands  against  them.  We 
have  no  institution  to  assume  that  responsibility 
in  this  country,  but  a  great  central  bank,  in 
consonance  with  the  plans  suggested  by  the  most 
prominent  bankers  in  this  country — which  are 
discussed  in  a  subsequent  chapter — could  be 
established  without  any  serious  derangement  to 
existing  institutions. 

/  A  most  serious  defect  in  our  currency  system 
is  that  it  possesses  no  power  to  steady,  equalize, 
or  cheapen  interest  rates.  And,  as  a  consequence, 
call  money  rates  are  subject  to  violent  fluctua- 
tions— rising,  at  times,  to  125  per  cent. — to  the 
great  disturbance  of  the  money  market  and  of 
business.  On  October  31,  1907,  at  the  height  of 
our  panic,  the  Bank  of  England's  rate  was  only 
7  per  cent.,  and  it  has  never  risen  above  10  per 
cent.  During  the  year  1907,  the  mean  discount 
rate  of  the  Bank  of  France  was  only  3.45  per 
cent.,  and  from  1892  to  1898,  inclusive,  it  was 
never  above  2.50  per  cent.,  falling  to  2.20  per 
cent,  in  1895  and  in  1898,  and  to  a  flat  2  per  cent, 
in  1896.     By  its  note-issuing  power  the  central 

27 


A   CENTRAL   BANK 

bank  regulates  the  volume  of  its  notes  in  accord- 
ance with  the  commercial  demand,  thus  assuring 
an  ample  supply  of  currency  and  preventing  ris- 
ing interest  rates.  Through  the  same  means  it 
conserves  the  gold  stock,  and  should  that  be  in 
danger  of  impairment  through  speculation,  over- 
trading, or  foreign  exchange  operations  it  raises 
its  discount  rate  and  gold  exportations  cease. 

The  rate  is  always  advanced  with  caution  and 
prudence — never  arbitrarily.  Should  the  market 
not  respond  to  the  central  bank's  corrective,  the 
bank  will  enter  the  market  and  become  a  bor- 
rower itself,  to  reduce  the  supply  of  loanable 
funds  and  thereby  enhance  the  value  of  money. 
Of  this  whole  operation  the  procedure  of  the 
Bank  of  England  during  two  weeks  in  last  Octo- 
ber is  the  clearest  illustration.  On  October  7  the 
bank's  discount  rate  was  3  per  cent.  One  week 
later  it  was  advanced  a  point,  and  4  per  cent,  be- 
came the  ruling  rate.  At  that  rate  the  bank  had 
to  enter  the  market  as  a  borrower  to  reduce  the 
available  supply  of  money  in  the  hands  of  the 
market,  because  the  bankers  and  brokers  disre- 
garded its  intimation  that  they  should  cease 
lending  out  of  the  country.  The  bank  failed  to 
command  the  situation  even  then,  and  on  Octo- 
ber 21  raised  its  discount  rate  to  5  per  cent.  The 
bank's   action   led   to   much   international   com- 

28 


A   CENTRAL  BANK'S   FUNCTIONS 

ment,  for  its  rate  had  not  been  advanced  so  high 
in  twenty-two  months;  but  its  position  as  the 
regulator  of  the  money  market,  and  its  influence 
over  the  world's  one  free  eold  market,  justified 
it  in  doing  what  it  did.  Granting  that  it  may  not 
have  quoted  the  actual  rate  for  money  at  that 
time,  it  quoted  a  rate  that  it  believed  should  be 
charged  to  protect  the  nation's  gold  stock;  and, 
in  doing  so,  it  performed  its  function  as  a  cen- 
tral bank  charged  with  the  protection  of  British 
credit. 


29 


FOREIGN  CENTRAL  BANKING  SYSTEMS. 
I.     BANK  OF  ENGLAND. 

The  Bank  of  England  antedates  all  of  the 
central  banks  in  Europe.  It  received  its  first 
Charter  on  April  25,  1694,  for  a  period  of  ten 
years.  Its  capital  was  £1,200,000,  voluntarily 
subscribed  by  the  public,  and  this  sum  v^as  lent 
to  the  Government  at  8  per  cent,  interest,  in  addi- 
tion to  an  allowance  of  £4,000  annually  for 
management  and  expenses,  making  in  all  £100,- 
000  yearly.  The  bank  was  authorized  to  issue 
notes  to  the  extent  of  its  capital.  Its  early  years 
were  marked  by  great  trouble  and  many  vicis- 
situdes, but  it  survived;  and  in  1737  an  opinion 
of  its  services  to  the  kingdom  appearing  in  the 
London  Magazine  said:  "There  certainly  never 
was  a  body  of  men  that  contributed  more  to  the 
public  safety  than  the  Bank  of  England.  They 
have,  upon  every  emergency,  always  cheerfully 
and  readily  supplied  the  necessities  of  the  nation 
.  .  .  and  have  relieved  the  nation  out  of  the 
greatest  difficulties,  if  not  absolutely  saved  it 
from  ruin.'^ 

Toward  the  end  of  the  eighteenth  century  the 
country  was  embarrassed  by  war  and  in  financial 
difficulty.  The  bank  had  always  honored  its 
notes  up  to  this  time,  but  in  1796  its  gold  reserve 

31 


A    CENTRAL   BANK 

was  drained  steadily  owing  to  fear  of  a  Napo- 
leonic invasion.  In  1797  the  directors  felt  that 
a  specie  suspension  was  inevitable;  and,  on  ap- 
pealing to  the  Government,  that  institution 
made  public  an  order,  dated  February  27,  1797, 
in  which  the  following  appeared:  "The  directors 
mean  to  continue  their  annual  discounts  for  the 
accommodation  of  the  commercial  interest,  pay- 
ing the  amount  in  hank-notes,  and  the  dividend 
warrants  will  be  paid  in  the  same  way."  This 
suspension  of  specie  payments,  although  drastic, 
received  the  approval  of  the  people,  who  readily 
declared  their  willingness  to  support  the  public 
credit  by  accepting  bank-notes.  On  May  21, 
1821,  the  bank  resumed  payments  in  specie.  The 
year  1824,  however,  brought  other  trials  for  the 
bank.  It  was  a  period  of  great  speculation,  and 
led  to  a  panic  at  the  close  of  1825,  when  many 
London  and  county  bankers  were  forced  to  sus- 
pend. The  Bank  of  England's  reserves  were  re- 
duced to  nominal  figures,  and  it  sought  permis- 
sion again  to  "restrict"  its  payments.  This  the 
Government  resisted,  and  the  bank,  thereupon, 
bethought  it  of  a  large  quantity  of  £  1  notes  in 
its  vaults,  the  issuance  of  which  had  quick  and 
beneficial  results.  These  notes  took  the  place  of 
the  notes  of  the  private  bankers  and  the  demand 
for  bullion  ceased. 

32 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

In  1826  the  bank  first  established  branches, 
and  surrendered  its  monopoly  of  joint-stock 
banking,  except  within  a  radius  of  sixty-five 
miles  of  London.  In  1833  it  yielded  its  joint- 
stock  banking  monopoly  entirely,  in  considera- 
tion for  the  renewal  of  its  Charter,  and,  in  addi- 
tion, for  the  note-issuing  monopoly  it  was  given 
within  the  sixty-five  mile  limit  aforementioned. 
The  directors  of  the  bank  then  laid  down,  as  a 
guiding  principle  for  the  future,  that  one-third 
of  their  liabilities  should  be  kept  in  cash  and 
bullion,  and  the  remaining  two-thirds  in  securi- 
ties. Circumstances,  however,  decreed  other- 
wise, and  the  standard  so  laid  down  was  not 
respected  during  1836  and  1837,  In  1839  the 
cash  held  by  the  bank  was  about  one-third  of  the 
amount  of  its  securities,  and,  its  investments  in- 
creased so  rapidly,  by  September  of  that  year  its 
securities  stood  at  £29,000,000  and  its  cash  at 
only  £2,936,000.  A  Parliamentary  inquiry  fol- 
lowed, but  not  until  1844,  when  its  Charter  ex- 
pired, was  any  reform  attempted.  On  July  19 
of  that  year  the  present  Charter,  introduced  in 
Parliament  by  Sir  Robert  Peel,  was  granted  and 
continues  unaltered  to  the  present  day. 

Thereunder  the  issue  and  banking  depart- 
ments of  the  bank  were  separated  on  and  after 
August  31,  1844;   and  securities  to  the  value  of 

33 


A    CENTRAL   BANK 

£14,000,000  (including  the  debt  due  the  bank 
from  the  Government)  were  transferred  to  the 
issue  department,  together  with  so  much  coin 
and  bulHon  that  the  total  so  transferred  equaled 
the    total    amount    of   notes    then    outstanding. 
Thereafter  the  issue  department  was  prohibited 
from  issuing  notes  in  excess  of  a  total  of  £14,- 
000,000   except   in   exchange   for   gold   coin    or 
bullion.    The  issue  department's  holdings  of  sil- 
ver were  restricted  to  one-fourth  part  of  its  gold 
holdings  (it  holds  no  silver  now),  and  notes  were 
to  be  issued  on  demand  in  exchange  for  gold  at 
the  rate  of  £3  17s.  9d.  per  standard  ounce.    The 
issue  department  was  authorized  to  increase  its 
note  issues  against  securities    to   the   extent   of 
two-thirds  of  the  issue  of    any    private    banker 
which  might  be  relinquished,  all  profits  thereon 
accruing  to  the  Government.    Up  to  the  present 
time  the  note  issues  of  the  bank  under  this  pro- 
vision  have  increased    £4,450,000,   making  the 
total  of  its   authorized  issues   against   security 
to-day  £18,450,000.     A  weekly  statement,  in  a 
prescribed  form,  of  the  position  of  the  issue  and 
banking  departments  was  also  provided  for;  and 
if  issues    of   private    bankers    lapsed    from    any 
cause,  the  same  could  not  be  resuscitated;  nor 
could  the  right  of  issue  by  private  bankers  be 
acquired  after  1844.     Such  is  a  condensation  of 

34 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

the  chief  provisions  of  the  Act  of  1844,  the  pres- 
ent Charter  of  the  Bank  of  England. 

Mr.  F.  Straker  furnishes  us  in  his  book,  The 
Money  Market,  with  the  following  account — the 
first  weekly  statement  under  the  new  Charter — 
of  the  liabilities  and  assets  of  the  Bank  of  Eng- 
land for  the  week  ending  September  7,  1844: 

Issue  Department.  ' 

Dr. 
Notes  issued £28,351,295 

£28,351,295 
Cr. 

Government  debt £11,015,100 

Other    securities 2,984,900 

Gold  coin  and  bullion 12,657,208 

Silver  bullion 1,694,087 

£28,351,295 
Banking  Department. 
Dr. 

Proprietors'  capital £  14,553,000 

Rest    3,564,729 

Public  deposits 3,630,809 

Other  deposits 8,644,348 

Seven-day  and  other  bills 1,030,354 

£31,423,240 
Cr. 

Government    securities £  14,554,834 

Other  securities 7,835,616 

Notes    8,175,025 

Gold  and  silver  coin 857,765 

£31,423,240 

The  Charter,  in  the  opinion  of  English  bank- 
ing authorities,  has  worked  well  in  the  main,  its 

35 


A    CENTRAL   BANK 

only  drawback  being  its  want  of  elasticity  in 
time  of  need.  The  bank  cannot  increase  its  issue 
of  notes  against  securities  beyond  the  prescribed 
limit.  When  it  was  necessary  for  it  to  do  so, 
however,  the  Charter  was  suspended,  as  de- 
scribed in  the  preceding  chapter,  and  doubtless, 
were  a  similar  situation  to  arise,  the  Government 
would  consent  to  its  suspension  a  fourth  time 
and  Parliament  would  confirm  such  action. 
Nevertheless,  there  are  many  in  England  who 
contend  that  the  suspension  of  the  Charter 
should  be  automatic  to  a  certain  extent,  without 
the  assent  and  intervention  of  the  authorities. 
By  waiting,  say  these,  until  the  Government 
might  deem  it  expedient  to  give  the  bank  the 
necessary  powers,  a  panic  might  be  precipitated. 
The  bank  moved  into  new  quarters  in  Thread- 
needle  Street  on  June  5,  1734.  These  now  cover 
three  acres,  and  the  bank  is  known  as  "The  Old 
Lady  of  Threadneedle  Street."  Under  its  direc- 
tion London  has  become  the  centre  of  the  world's 
exchanges  and  the  one  and  only  free  gold  market 
in  the  world. 

A  governor,  a  deputy  governor  and  twenty- 
four  directors  constitute  the  administrative 
board  of  the  Bank  of  England.  The  governor, 
deputy  governor  and  eight  directors  retire  every 
year.    Seniority  among  the  directors  in  point  of 

36 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

service  usually  rules  in  selecting  a  governor  and 
deputy  governor.  Lenders  of  money  on  com- 
mercial paper  are  not  eligible  for  the  directorate. 
The  governor  usually  serves  two  years,  and  a 
director  is  seldom  made  governor  out  of  his 
turn.  His  waiting  period  is,  approximately, 
twenty  years.  Meetings  of  the  directors  are  held 
every  Thursday  to  discuss  the  "weekly  report.'* 
While  the  bank  is  the  custodian  of  the  Govern- 
ment's moneys  and  performs  many  financial 
operations  for  it,  it  is  singularly  free  from  gov- 
ernmental restriction  or  interference.  Owing  to 
its  being  the  Government's  banker  its  relations 
with  it  are  practically  the  same  as  those  with  its 
other  patrons.  Its  taxes  are  moderate  and  its 
profits  are  not  shared  with  the  Government. 
While  the  obligation  resting  upon  it  to  preserve 
the  country's  gold  reserve  has  lessened  its  profits, 
it  paid  a  dividend  of  11  per  cent,  in  1891;  \0j4 
per  cent,  in  1879,  1882  and  1890;  10  per  cent, 
from  1897  to  1903,  and  since  then  about  9  per 
cent,  on  an  average. 


37 


A   CENTRAL   BANK 

II.  BANK  OF  FRANCE. 
Next  to  the  Bank  of  England,  the  Bank  of 
France  is  the  oldest  of  the  European  central 
banks.  The  great  Bonaparte  had  much  to  do 
with  its  establishment,  which  dates  from  Janu- 
ary 18,  1800,  when  a  decree  instituting  it  with  a 
capital  of  30,000,000  francs  in  shares  of  1,000 
francs  each  appeared.  Napoleon,  Murat,  Duroc 
and  others  equally  prominent  at  that  date  were 
among  the  original  subscribers  to  the  stock  of 
the  bank,  and  by  1802  all  the  shares  were  pur- 
chased. The  bank  began  its  business  career  on 
February  20,  1800,  as  a  bank  of  issue  and  dis- 
count, in  competition  with  other  institutions  en- 
joying similar  privileges.  It  was  a  private  insti- 
tution and  free  from  governmental  interference. 
By  a  law  passed  on  April  14,  1803,  it  was  given 
the  exclusive  right  to  issue  notes  in  Paris  and 
its  capital  was  increased  to  45,000,000  francs. 
The  next  three  years  were  somewhat  embar- 
rassing for  the  bank.  Military  necessity,  incident 
to  the  campaign  against  Prussia  and  the  allies, 
taxed  the  bank's  resources,  reduced  its  coin  re- 
serve and  led  to  such  a  currency  inflation  that 
the  bills  fell  below  par.  Immediately  after  the 
victory  at  Austerlitz,  Napoleon  ordered  a  change 
in  the  bank's  administration.  The  law  of  April 
22,  1806,  was  passed  to  embody  his  views.  There- 

38 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

under  the  capital  was  increased  to  90,000,000 
francs;  the  direction  of  the  bank  was  confided  to 
a  governor  and  two  sub-governors  named  by  the 
State;  and  its  charter  was  extended  to  Septem- 
ber 24,  1843.  By  a  decree,  dated  May  18,  1808, 
the  bank  was  given  exclusive  privilege  of  note 
issues  in  towns  wherein  it  opened  branches. 

The  fortunes  of  the  bank  followed  those  of 
the  Emperor,  and  when  his  reversal  came  the 
bank's  existence  was  seriously  menaced.  It 
weathered  the  storm,  however,  but  with  greatly 
curtailed  privileges.  Some  of  its  branches  were 
abandoned,  and  a  new  type  of  institution,  termed 
a  departmental  bank,  sprang  up  in  nine  principal 
cities  of  France.  These  had  no  connection  with 
the  Bank  of  France,  issued  their  own  notes,  and 
were  largely  responsible  for  the  industrial  de- 
velopment of  France  up  to  1847.  In  1840  the 
Bank  of  France  entered  the  lists  against  these 
banks  by  establishing  branches  in  the  leading 
cities  and  availing  itself  of  its  note-issuing 
monopoly,  which  action  led  to  a  prolonged  con- 
test, resulting  in  the  passage  of  a  law  on  June 
30,  1840,  extending  the  privileges  of  the  Bank  of 
France  until  December  31,  1867,  and  limiting  the 
further  establishment  of  departmental  banks. 
An  amendatory  act  the  year  following,  gave  the 

branches  of  the  Bank  of  France  exclusive  note- 

39 


A    CENTRAL   BANK 

issuing  privileges  in  the  cities  of  their  estabHsh- 
ment.  The  crisis  of  1847  and  the  Empire's  down- 
fall in  1848  led  to  great  business  and  financial 
embarrassment,  and,  finally,  to  the  suspension 
of  specie  payments.  The  outcome  of  the  work 
of  reorganization  was  the  fusion  of  all  depart- 
mental banks  with  the  Bank  of  France,  and  the 
conferment  upon  the  latter  of  exclusive  note- 
issuing  powers.  Its  capital  was  increased  by  the 
aggregate  amount  of  that  of  the  nine  depart- 
mental banks.  On  June  9,  1857,  its  capital  was 
again  increased,  its  charter  was  extended  for 
forty  years,  its  existing  privileges  were  con- 
firmed, and  it  was  exempted  from  the  operation 
of  the  usury  laws  in  order  that  it  might  control 
foreign  exchanges  by  means  of  its  discount  rate. 
It  is  from  this  period  that  its  real  service  to  the 
nation  began. 

Perhaps  its  greatest  contribution  to  the  na- 
tion was  the  part  it  played  during  and  after  the 
cessation  of  hostilities  in  1870.  At  the  close  of 
the  Franco-Prussian  war  it  had  advanced  to  the 
Government  a  sum  equivalent  to  $280,000,000. 
On  August  12,  1870,  specie  payments  were  or- 
dered suspended  by  the  Government  to  conserve 
the  gold  reserve,  and  the  aggregate  note  issues 
were  limited  to  1,800,000,000  francs.  On  August 
14  this  was  raised  to  2,400,000,000  francs;  ex- 

40 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

tended  to  2,800,000,000  francs  on  December  29, 
1871,  and  on  July  15,  1872,  to  3,200,000,000 
francs.  Although  the  time  set  for  specie  resump- 
tion was  whenever  the  Government  would  reduce 
its  indebtedness  to  the  bank  to  300,000,000 
francs,  which  did  not  come  to  pass  until  the  end 
of  1877,  the  Bank  of  France  began  making  silver 
payments  in  1873,  and  gold  payments  in  1874. 

Under  the  Treaty  of  Frankfort  of  May  10, 
1871,  France  was  obligated  to  pay  to  Germany 
$1,000,000,000,  in  four  payments,  the  first  to  be 
made  thirty  days  after  order  had  been  restored 
in  Paris,  and  the  final  on  March  2,  1874.  A 
notable  condition,  galling  to  French  pride,  was 
that  German  troops  were  to  occupy  French  soil 
until  the  stipulated  amount  was  paid.  This 
hastened  the  payments  considerably  and  almost  a 
year  before  the  time  agreed  upon  the  German 
military  forces  had  left  France.  The  Bank  of 
France  advanced  the  payments  required  for  1871, 
amounting  to  $300,000,000,  and  two  government 
loans,  offered  during  1871  and  1872,  were  over- 
subscribed many  times.  Gold  and  silver  hoarded 
for  many  years  came  at  the  call  of  patriotism,  and 
that  event  marks  the  beginning  of  security  in- 
vestment among  the  French  people.  The  specie, 
so  drawn  from  its  hiding  places,  enabled  the 
Bank  of  France  almost  to  double  its  coin  reserve. 

41 


A   CENTRAL   BANK 

The  French  Government  purchased  bills  of  ex- 
change upon  every  quarter,  and  as  many  of  these 
w^ere  upon  England  the  gold  reserves  of  the  Bank 
of  England  were  levied  upon  heavily,  so  that  the 
bank  was  compelled  to  maintain  high  discount 
rates  during  1872  and  1873.  In  assisting  the 
French  Government  in  placing  its  loans  and  in 
securing  obligations  which  Germany  would  ac- 
cept and  transferring  them  to  that  country's 
credit,  the  Bank  of  France  rendered  the  nation 
conspicuous  service. 

The  Bank  of  France  adopted  an  exceedingly 
effective  policy  in  1877,  when  it  found  itself  in 
possession  of  a  gold  reserve  of  $232,000,000,  and 
a  silver  reserve  of  $165,000,000.  It  decided  to 
redeem  its  obligations  in  either  gold  or  silver,  at 
its  own  discretion,  and  to  charge  a  premium  for 
gold.  This  policy  it  has  maintained  rigidly,  and 
hence  it  is  enabled  to  protect  its  tremendous  gold 
stock,  amounting  to  more  than  $700,000,000;  be- 
cause when  gold  is  needed  for  exportation  it 
cannot  be  obtained  from  the  bank,  but  must  be 
taken  from  the  channels  of  circulation.  This 
method  is  the  bank's  substitute  for  the  Bank  of 
England's  device  in  advancing  its  discount  rate; 
but  while  effective  for  the  bank's  own  particular 
purpose  it  exercises  no  restraint  or  control  upon 
the  money  market  as  is  the  case  under  the  Bank  of 

42 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

England's  policy.  Indeed,  its  traditional  policy  of 
serving  commerce  has  induced  it  at  times  to  pur- 
chase gold  at  a  loss  for  its  reserve,  rather  than 
burden  trade  by  an  advance  in  its  discount  rate; 
and  in  its  charter  granted  in  1897,  there  is  a  pro- 
vision whereby  three-fourths  of  all  profits  de- 
rived from  a  discount  rate  of  more  than  five  per 
cent,  are  to  be  covered  into  the  public  Treas- 
ury. This  is  to  discourage  rate  advances  to  re- 
tain gold.  Accordingly,  it  discounts  paper  in 
silver  v^hich  is  not  acceptable  in  foreign  ex- 
change transactions.  The  circulation  of  the 
Bank  of  France  is  practically  unlimited.  In 
1884,  the  Government  proposed  to  make  it  such, 
but  instead  a  maximum  was  ordained  of  3,500,- 
000,000  francs.  In  1893,  this  limit  was  placed  at 
4,000,000,000  francs;  and  in  1906,  at  5,800,000,- 
000  francs.  With  its  enormous  gold  reserve  it 
can  support  a  much  larger  note  circulation,  and 
as  the  Government  knows  this  to  be  the  case,  it 
always  raises  the  limit  in  accordance  with  the 
public  demand  for  notes.  Its  circulation,  there- 
fore, is  practically  unlimited.  In  other  words,  the 
French  Government  being  assured  of  the  safety 
and  quality  of  the  bank's  currency,  in  accordance 
with  a  sound  economic  principle,  is  willing  to  let 
its  quantity  rest  on  commercial  demand. 

The  French  law  makes  no  provision  for  col- 

43 


A   CENTRAL   BANK 

lateral  security  for  the  note  issues  of  the  Bank  of 
France,  or  for  its  reserves.  Its  charter  reads: 
"The  notes  shall  be  covered  either  by  coin  held 
by  the  bank,  or  by  notes  secured  by  collateral,  or 
by  notes  signed  by  three  responsible  persons." 
That  v^as  the  policy  of  the  bank  upon  its  incep- 
tion more  than  one  hundred  years  ago,  and  to- 
day, as  a  result,  v^e  find  it  the  most  powerful  in- 
stitution in  the  world  and  the  most  responsive 
to  popular  necessity.  The  great  banks  redis- 
count their  loans  at  the  Bank  of  France  to  the 
extent  of  millions  of  francs,  which  gives  the  cur- 
rency of  that  country  a  liquidity  and  responsive- 
ness to  changing  conditions,  that  ours  has  never 
known.  Nor  are  its  transactions  confined  to  the 
great  banks  alone.  The  Bank  of  France  has  up- 
wards of  500  branches,  and  at  the  central  institu- 
tion or  at  any  one  of  these  every  business  day  in 
the  year  it  will  discount  any  good  bill  that  is  not 
less  than  eight  dollars.  Its  discount  transactions 
under  twenty  dollars  daily  total  several  thous- 
and, to  the  resulting  benefit  of  the  small  trader. 
Its  rates  are  always  conservative,  and  are  uni- 
form at  all  branches.  From  1905  to  1907,  its  dis- 
count rate  was  three  per  cent,  and  three  and  one- 
half  per  cent,  for  advances  against  securities. 
During  the  decade  from  1890  to  1900,  the  Bank  of 
England  altered  its  discount  rate  sixty-six  times; 

44 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

the  Bank  of  France,  nine  times.  The  strength 
of  its  metalHc  reserves  enables  it  to  maintain  this 
uniformity,  and  in  1907  it  assisted  the  Bank  of 
England  to  replenish  its  gold  reserve,  which  had 
been  reduced  by  American  demands  following 
our  panic. 

Its  power  of  note  issue  on  rediscounting  trans- 
actions is  practically  unrestrained,  and  this  makes 
the  institution  the  national  sanctuary  in  time  of 
need.  In  conjunction  with  its  enormous  wealth  of 
gold  and  stable  discount  rates,  the  bank  of  France 
is  the  foundation  of  the  strongest  and  most  en- 
lightened financial  system  in  the  world.  Its  capi- 
tal is  182,500,000  francs,  owned  by  private  citi- 
zens numbering,  approximately,  30,000;  and  it 
is  governed  by  the  officials  aforementioned,  ap- 
pointed by  the  President  of  France  and  remov- 
able by  the  Minister  of  Finance,  and  by  a  board 
of  fifteen  regents  elected  by  the  shareholders.  It 
receives  and  disburses  Government  moneys,  as- 
sists in  managing  the  public  debt,  and  in  issuing 
Government  loans,  but  it  is  not  the  agent  of 
the  Government.  It  furnishes  a  statement  to  the 
Government  semi-annually,  and  a  weekly  state- 
ment of  its  affairs  is  published  every  Friday. 
Revenues  derived  from  the  Bank  of  France  by  the 
Government  arise  from  taxation,  and  not  from 
any  profit-sharing  agreement. 

45 


A   CENTRAL   BANK 

III.  IMPERIAL  BANK  OF  GERMANY. 
Germany's  victory  over  France  in  1870  and 
the  proclamation  of  William  I.  of  Prussia  as  Em- 
peror at  Versailles  in  1871,  converted  the  tw^enty- 
six  independent  German  states  into  an  empire. 
In  harmony  with  the  new  order  the  banking  sys- 
tems of  these  states  had  to  be  reorganized,  and 
to  establish  a  great  central  bank  for  the  German 
Empire,  the  Imperial  Bank  of  Germany,  also 
called  the  Reichsbank,  came  into  existence  in 
1875,  successor  to  the  Royal  Bank  of  Prussia, 
with  enlarged  powers.  The  Bank  of  England 
seems  to  have  been  the  model  for  the  Reichsbank, 
although  the  inelasticity  of  the  former's  currency 
has  been  avoided.  In  order  to  facilitate  domestic 
exchanges  among  the  several  states  and  with 
foreign  countries  the  whole  banking  system  re- 
quired substantial  reformation,  and  this  seemed 
the  more  urgent  since  in  1873,  owing  to  the  gold 
received  by  Germany  in  payment  of  the  war  in- 
demnity from  France,  the  Imperial  gold  standard 
had  been  adopted,  the  gold  mark  becoming  the 
unit  of  value.  Under  the  law  establishing  the 
gold  standard  an  effort  was  made  to  reduce  the 
note  circulation  of  the  state  banks  by  ordering 
that  if  the  value  of  their  notes  was  not  declared 
in  Imperial  marks  on  or  before  January  1,  1876, 
they  would  be  withdrawn  from  circulation. 

46 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

The  Royal  Bank  of  Prussia  ceased  its  opera- 
tions on  December  31,  1875,  and  transferred  its 
rights  and  privileges  to  the  Imperial  Bank  of 
Germany.  The  latter's  capital  was  120,000,000 
marks,  divided  into  40,000  shares.  These  v^ere 
all  taken  by  the  public,  about  one-half  being  ac- 
cepted by  the  Royal  Bank  of  Prussia's  share- 
holders for  the  surrender  of  their  holdings  in  that 
institution.  The  capital  is  now  180,000,000 
marks,  the  excess  being  divided  into  60,000  shares 
of  1,000  marks  each.  Its  control  was  vested  in 
a  council  of  curators  comprising  the  Chancellor 
of  the  Empire  and  four  others,  one  named  by  the 
Emperor  and  three  by  the  Federal  Council  of 
Germany.  The  Chancellor  is  the  real  head  of 
the  institution,  the  source  of  all  authority  as  to 
the  bank's  management.  In  addition,  the  Gov- 
ernment names  a  council  who  serve  for  life  and 
who  are  the  administrative  directors  of  the  bank. 
One  of  these  is  president  and  another  vice-presi- 
dent. Officers  of  the  bank  may  not  own  any  of 
its  stock.  The  shareholders  elect  a  council  of 
fifteen  from  their  own  ranks,  and  these  look 
after  the  weekly  reports  of  the  bank,  inspect  the 
accounts  of  depositors,  determine  the  amount  of 
funds  for  loans,  the  discount  rate,  and  other  ad- 
ministrative details. 

At  the  outset  the  Government's  efforts  to  re- 

47 


A   CENTRAL   BANK 

Strain  the  note-issuing  privileges  of  the  banks, 
in  order  to  confer  upon  the  Reichsbank  a  mo- 
nopoly, were  drastic  and  occasioned  much  feeling 
among  the  banks.  The  restrictions,  however, 
proved  too  much  for  them  and  in  1908,  only  four 
banks:  Bank  of  Bavaria,  Bank  of  Saxony,  Bank 
of  Baden,  and  Bank  of  Wurtemberg  remained  to 
dispute  the  note-issuing  field  with  the  Imperial 
Bank  of  Germany,  which  absorbed  the  issues  of 
all  the  banks  yielding  up  their  note-issuing  privi- 
leges, by  increasing  its  note  issues  by  the  aggre- 
gate amount  surrendered.  While  the  note  circu- 
lation of  the  Reichsbank  is  not  so  unrestricted 
as  that  of  the  Bank  of  France,  it  is  sufftcient  to 
prevent  a  currency  stringency,  and  to  furnish 
necessary  accommodation.  The  bank  may  issue 
notes  against  its  general  credit  to  the  amount  of 
472,829,000  marks,  free  from  taxation.  It  may 
increase  this  amount  at  any  time,  and  is  then 
obliged  to  pay  to  the  Government  a  five  per  cent, 
tax.  Against  its  note  issues  the  bank  is  obliged 
to  maintain  a  coin  reserve  of  one-third  of  the  ag- 
gregate outstanding,  and  commercial  paper  in 
the  possession  of  the  bank  signed  by  three,  or 
at  least  by  two,  persons  known  to  the  bank  to 
be  solvent,  and  having  at  most  three  months  to 
run,  suf^ces  for  the  remaining  two-thirds.  Its 
five  per  cent,  tax  on  emergency  circulation  is  the 

48 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

characteristic  of  the  German  central  banking 
system.  When  money  is  urgently  needed  and 
the  bank's  limit  has  been  reached,  it  issues  its  ad- 
ditional currency  subject  to  the  tax,  and  so  long 
as  the  prevailing  discount  rates  remain  above  five 
per  cent,  the  notes  stay  in  circulation;  the  mo- 
ment the  rate  falls  the  notes  are  retired.  It  is  an 
elastic  device  which  enables  the  Reichsbank  to 
issue  currency  in  accordance  with  commercial 
demand;  for  by  its  operation  commercial  paper 
is  practically  resolved  into  currency.  The  auto- 
matic retirement  of  the  notes  furnishes  the  ele- 
ment of  contraction — the  essence  of  currency 
elasticity. 

Notes  in  excess  of  the  authorized  circulation 
were  first  issued  by  the  Reichsbank  in  December, 
1881.  Subsequent  issues  subject  to  the  tax  were 
circulated  in  1882,  1886,  1889  (three  times),  1890, 
1893,  1895,  and  thereafter,  to  and  including  1907, 
annually.  The  reaction  of  our  panic  in  Germany 
taxed  the  Imperial  Bank  heavily  in  1907.  In- 
ternal demands  for  capital  owing  to  heavy  specu- 
lation and  commercial  expansion  were  pressing, 
and  when  the  financial  storm  broke  in  this  coun- 
try the  burdens  of  the  Reichsbank  were  largely 
increased.  It  raised  its  discount  rate  on  Novem- 
ber 8,  1907,  to  seven  and  one-half  per  cent,  and 
maintained  it  at  that  figure  until  January   15, 

49 


A   CENTRAL   BANK 

1908.  Thence  until  March  8,  it  stood  at  seven 
per  cent,  and  for  several  months  subsequent  at 
five  per  cent.,  although  the  Bank  of  England's 
seven  per  cent,  rate  was  dropped  to  two  and  one- 
half  per  cent.  Such  were  the  steps  taken  by  the 
bank  to  preserve  its  gold  reserve,  and  owing  to 
the  effect  of  its  high  rates  on  business,  criticisms 
of  the  bank  and  the  Government  were  many  and 
frequent,  the  matter  finally  reaching  the  Reichs- 
tag, which  even  talked  of  modifying  the  gold 
standard. 

As  in  the  case  of  the  Bank  of  France,  the  Im- 
perial Bank  of  Germany  does  much  discounting 
for  the  large  joint-stock  banks,  "which  have  come 
to  play  an  important  part  not  only  in  commer- 
cial banking,"  says  Mr.  Charles  A.  Conant,  in  his 
excellent  work.  History  of  Modern  Banlcs  of 
Issue,  *'but  in  flotations  of  securities  and  cor- 
poration financing.'^  In  1906,  on  an  average, 
domestic  bills  rediscounted  by  the  bank  matured 
in  twenty  days.  The  bank's  branches  number 
500,  approximately,  and  while  its  notes  are 
redeemable  in  coin  in  Berlin  on  demand,  the 
branches  are  not  obliged  to  redeem  them  unless 
their  funds  on  hand  warrant  it.  One  signal 
service  of  the  branch  system  is  that  which  en- 
ables a  person — not  necessarily  a  depositor — in 
a    town    in    which    the    Reichsbank    operates    a 

SO 


FOREIGN  CENTRAL  BANKING  SYSTEMS 

branch,  desiring  to  pay  money  to  a  creditor  in 
another  town,  to  pay  the  amount  into  the  local 
branch,  and  on  the  following  day  it  will  be 
credited  to  the  current  account  of  the  person  for 
whom  it  is  intended.  No  charge  is  made  for 
such  transfers,  which  greatly  facilitate  business 
in  different  sections  and  economize  the  use  of 
specie.  The  bank  protects  its  reserve  and 
strengthens  its  control  over  the  money  market 
by  a  method  peculiarly  its  own.  According  to 
Dr.  Koch,  former  Governor  of  the  bank,  it  pur- 
chases foreign  bills  of  exchange,  particularly  on 
England,  when  they  are  low,  and  permits  them 
to  accumulate  until  exchange  rates  are  higher, 
and  when  there  is  a  probability  of  gold  exporta- 
tions  it  sells  them.  It  also  follows  the  Bank  of 
England's  policy  of  "borrowing  from  the  mar- 
ket," by  offering  Treasury  bills  for  rediscount, 
which  reduces  the  surplus  funds  and  steadies  the 
open  market  discount  rate. 

The  bank  is  empowered  to  purchase  and  sell 
gold;  to  rediscount  bills  which  mature  in  ninety 
days,  at  most;  to  make  loans  against  collateral 
for  the  same  period;  the  collateral  being  either 
gold,  silver,  domestic  securities  (up  to  seventy- 
five  per  cent,  of  their  market  value),  debentures 
of  the  Empire,  or  guaranteed  by  it,  railroad 
stocks  and  bonds,  and  bonds  of  certain  credit  in- 

51 


A   CENTRAL   BANK 

stitutions.  Foreign  government  securities  and 
railroad  bonds  guaranteed  by  foreign  govern- 
ments up  to  fifty  per  cent,  of  market  valuation 
are  accepted  as  collateral;  and  the  bank  may 
make  advances  against  merchandise,  stored  in 
Germany,  to  the  extent  of  tw^o-thirds  of  its  value. 
In  addition  it  manages  the  public  debt,  receives 
and  disburses  government  moneys,  and  issues 
bank  credit  notes.  Its  shareholders  receive  divi- 
dends of  three  and  one-half  per  cent.  Then, 
twenty  per  cent,  of  the  surplus  profits  goes  into 
the  reserve  fund  until  it  totals  $14,280,000.  Of 
the  remainder  the  Government  receives  three- 
fourths  and  the  shareholders  one-fourth.  Pre- 
miums earned  on  stock  issues  of  the  bank  go  to 
the  reserve,  w^hich  is  also  a  guarantee  fund  for 
the  shareholders'  dividend,  aforementioned.  The 
Reichsbank,  vs^hile  privately  ow^ned,  is  entirely 
under  the  domination  of  the  Government. 


52 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

IV.     CANADA'S  BANKING  SYSTEM. 

While  Canada  has  no  State  bank  like  Eng- 
land, France  or  Germany,  her  branch-banking 
system  is  another  modification  of  the  central 
bank's  workings.  In  the  Dominion,  in  effect, 
there  are  thirty-five  central  banks  with  almost 
nineteen  hundred  branches.  The  Bank  of  Mon- 
treal begun  as  a  private  organization  in  1817, 
and  chartered  in  1822,  was  the  first  bank  organ- 
ized in  Lower  Canada.  The  Quebec  Bank  and 
Bank  of  Canada,  both  in  Montreal,  obtained 
charters  later  in  that  year.  Under  these  instru- 
ments the  shareholders  were  only  liable  to  the 
extent  of  their  stock  subscriptions,  but  the  di- 
rectors were  liable  to  the  shareholders  and  de- 
positors in  case  the  bank's  liabilities,  exclusive 
of  deposits,  should  exceed  treble  the  amount  of 
the  paid  capital.  Note  issues  were  unlimited, 
and  loans  were  unprohibited  as  to  amount  or 
character.  Branches  were  immediately  estab- 
lished by  all  three,  and  each  competitor  received 
and  exchanged  the  other's  notes,  making  balance 
payments  in  specie  once  a  week. 

The  Bank  of  Canada  was  liquidated  in  1831, 
and  the  City  Bank  of  Montreal  was  chartered. 
In  Upper  Canada  the  first  bank,  organized  on 
April  21,  1821,  was  the  Bank  of  Upper  Canada, 
in  which  the  Government  had   £100,000,  which 

53 


A   CENTRAL   BANK 

was  increased  to  £200,000  in  1832.  Otlier  early 
banks  were  the  Commercial  Bank,  Gore  Bank 
of  Hamilton,  Bank  of  New  Brunswick,  Bank  of 
Nova  Scotia,  and  Halifax  Banking  Company. 
After  the  union  of  Upper  and  Lower  Canada  in 
1841,  a  resolution  for  the  establishment  of  a  great 
provincial  bank  of  issue,  inspired  by  Lord  Syden- 
ham, Governor  General,  was  defeated  in  the 
Provincial  Parliament. 

On  the  formation  of  the  Dominion  of  Canada 
in  1867  an  attempt  was  made  to  establish  a  se- 
cured circulation,  that  is,  a  government  currency, 
which  proved  abortive.  In  1870,  some  reforma- 
tive enactments  were  passed,  and  again  in  1871. 
But  in  1880,  following  the  depression  of  the  late 
seventies,  more  important  banking  laws  were 
adopted,  and  from  that  period  the  banking  sys- 
tem of  Canada  as  we  know  it  to-day  practically 
dates. 

To  organize  a  bank  in  Canada  a  capital  of 
$500,000  must  be  actually  subscribed,  and  $250,- 
000  must  be  paid  before  business  can  begin.  Each 
bank  is  authorized  to  issue  notes  to  an  amount 
equal  to  its  paid  capital,  but  owing  to  the  keen 
competition  among  Canadian  banks,  and  the 
prompt  redemption  facilities,  the  circulation  is 
generally  less  than  the  authorized  amount. 
Banks  must  arrange  to  insure  the  par  value  of 

54 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

their  notes  in  every  section  of  Canada,  and  to 
establish  redemption  agencies  at  the  chief  cities 
of  each  of  the  seven  provinces  and  at  such  other 
places  as  the  treasury  board  may  determine.  In 
the  larger  cities  the  notes  are  exchanged  at  the 
clearing-houses;  in  other  places,  at  the  nearest 
branches,  and  balances  are  paid  either  in  Do- 
minion notes  or  by  drafts  on  commercial  centres. 
Discounts  on  Canadian  bank  notes  anywhere  in 
the  Dominion  are  therefore  unknown.  This  is 
equally  true  of  notes  of  failed  banks.  By  a  law 
passed  in  1890,  bank  notes  are  a  prior  lien  on 
all  the  assets  of  failed  banks,  including  a  double 
liability  of  shareholders.  In  addition,  a  redemp- 
tion guaranty  fund,  contributed  by  all  the  banks 
on  a  basis  of  five  per  cent,  of  their  average  circu- 
lation is  maintained  to  redeem  them,  and  they 
bear  interest  at  the  rate  of  five  per  cent,  from 
date  of  the  issuing  bank's  failure  until  public 
announcement  is  made  that  they  may  be  pre- 
sented for  redemption. 

By  means  of  its  branches,  a  bank  in  Montreal, 
Toronto,  or  Halifax  receiving  deposits,  may  lend 
them  the  following  day  in  Winnipeg,  through 
the  issuance  of  its  own  notes.  The  branches  re- 
deem these  notes  by  drafts  on  the  parent  bank. 
This  freedom  of  note  issue  tends  to  equalize  and 
steady  the  interest  rate.  Said  Mr.  Horace  White, 

55 


A   CENTRAL  BANK 

former  editor  of  the  New  York  Evening  Post, 
in  a  debate  on  the  subject  of  Branch  Banking, 
some  years  ago,  before  a  joint  convention  of 
Missouri,  Kansas,  Oklahoma,  and  Indian  Terri- 
tory Bankers'  Associations:  "Under  the  branch 
system  in  Canada  the  parent  bank  is  like  a  reser- 
voir having  pipes  of  different  sizes  running  to 
different  consumers,  each  of  whom  can  draw  as 
much  money  from  the  general  supply  as  he  can 
advantageously  use  and  give  security  for."  The 
banks  do  not  divide  their  capital  into  as  many 
parts  as  there  are  branches.  They  lend  their 
notes  at  the  branches  and  redeem  them  at  the 
parent  bank.  This  dispenses  with  local  redemp- 
tion and  saves  time,  capital,  and  labor.  Should 
a  bank,  receiving  deposits  in  Toronto,  be  obliged 
to  send  its  notes  by  express  to  Winnipeg,  time 
and  interest  would  be  lost.  If  it  was  compelled 
to  take  out  bonds  before  issuing  its  notes  and 
deposit  them  in  the  Treasury,  its  profit  probably 
would  be  wiped  out. 

The  reserves  are  maintained  principally  in  the 
financial  centres  or  redemption  cities,  and  the 
branch  banks  act  as  circulating  agencies  for  the 
notes  of  the  parent  bank,  supplying  the  entire 
borrowing  requirements  in  their  localities  at  the 
rates  prevailing  at  the  parent  seat.  The  surplus 
funds  are  constantly  moving  in  response  to  de- 

56 


FOREIGN    CENTRAL    BANKING    SYSTEMS 

mand,  and  local  borrowers  do  not  have  to  leave 
home  for  accomodation.  This  enures  to  the 
protection  of  the  banks  as  w^ell  as  to  the  con- 
venience of  the  borrow^er,  for  it  checks  over- 
expansion  on  the  part  of  borrov^ers.  Our  diffi- 
culty in  crop-moving  season  is  unknow^n  in  Can- 
ada. When  the  demand  for  money  for  harvest- 
ing the  crops  is  voiced  in  the  Dominion  it  leads 
to  no  constriction,  because  the  banks  can  issue 
their  notes  in  the  amounts  and  at  the  times  and 
places  w^here  they  are  needed.  All  seasons  are 
alike  to  Canada  so  far  as  an  adequate  supply  of 
currency  is  concerned;  it  is  always  responsive  to 
the  demand.  To  conclude,  Canada  has  an  ade- 
quate, scientific  banking  system,  an  elastic  cur- 
rency, with  adequate  redemption  facilities,  the 
average  period  of  a  note's  circulation  being  only 
thirty  days.  Its  currency  is  a  credit,  or  asset, 
currencv  and  its  svstem  is  akin  to  a  central  bank. 


i)7 


EARLY  FEDERAL  BANKS  OF  ISSUE. 

I. 
From  the  days  of  the  Revolution  the  history 
of  American  finance  has  been  one  unsuccessful 
struggle  for  a  serviceable  currency  system.  And 
the  fact  remains  that  we  were  nearer  our  goal  in 
that  respect  one  hundred  years  ago  than  at  any 
subsequent  period.  Indeed,  the  war  for  inde- 
pendence did  more  for  us  in  shaping  a  sound 
financial  policy,  than  did  the  war  to  preserve 
the  nation's  life  almost  ninety  years  later.  What 
may  be  said  to  be  the  genesis  of  American  banks 
of  issue  sprang  from  the  sufferings  of  the  patriot 
army  at  Valley  Forge,  when  Washington  made 
known  to  Congress  the  distress  and  suffering  of 
his  half-naked,  shoeless,  and  starving  troops.  At 
a  meeting  of  citizens  in  Philadelphia,  summoned 
to  assist  the  soldiery,  in  which  Thomas  Paine, 
Robert  Morris,  and  Blair  McClenachan  figured 
prominently,  a  "security  subscription"  was 
opened  to  supply  the  army  with  rations,  and  the 
Bank  of  Pennsylvania  was  established.  This 
was  in  1780,  and  in  July  of  that  year  the  bank 
was  opened  and  continued  in  operation  until 
1784.  The  amount  determined  upon  as  neces- 
sary  for   the   relief   of   the   patriot   forces   was 

59 


A    CENTRAL   BANK 

three  hundred  thousand  pounds  of  Pennsylvania 
currency,  real  money,  and  ten  per  cent,  of  the 
subscription  was  paid  in  immediately  by  ninety- 
two  persons.  Bonds  were  executed  by  the  sub- 
scribers to  form  the  bank's  capital,  and  notes 
bearing  6  per  cent,  were  issued.  The  credit  of 
the  subscribers  was  used  to  borrow  money,  and 
all  sums  received  or  borrowed  from  Congress 
were  applied  to  the  bank's  operating  expenses, 
and  in  the  purchase  and  transportation  of  rations 
and  rum  for  the  Continental  army.  Through  the 
assistance  given  by  the  Bank  of  Pennsylvania 
the  army  received  3,000,000  rations  and  300 
hogsheads  of  rum.  The  subscribers  to  the  cap- 
ital of  the  bank  were  secured  by  bills  of  exchange 
drawn  on  the  envoys  in  Europe,  but  which  were 
not  intended  to  be  negotiated.  The  successful 
operation  of  this  bank  impressed  upon  Robert 
Morris,  then  Superintendent  of  Finance  for  the 
colonies,  the  wisdom  of  having  a  real  Govern- 
ment bank,  and  with  this  end  in  view,  on  May 
26,  1781,  Congress  approved  his  plan  for  the 
Bank  of  North  America.  The  foreign  bills  held 
by  the  Bank  of  Pennsylvania  were  taken  over  by 
the  Bank  of  North  America  and  the  claims  of  the 
former  against  the  Federation  were  paid  in  cash. 
The  interest-bearing  notes  of  the  Bank  of  Penn- 
sylvania, so  patriotically  conceived,   practically 

60 


EARLY   FEDERAL  BANKS   OF   ISSUE 

made  that  institution  the  first  American  bank  of 
issue. 

On  the  last  day  of  the  year  1781,  the  charter 
of  the  Bank  of  North  America  was  granted,  and 
a  week  later  it  opened  for  business  in  the  city  of 
Philadelphia.  Alexander  Hamilton  actively  co- 
operated with  Morris  in  establishing  the  bank, 
and  recommended  a  capital  of  $3,000,000.  Mor- 
ris, however,  contented  himself  with  placing  the 
capital  at  $400,000,  with  authority  to  increase 
that  sum.  The  par  value  of  the  shares  was  $400 
each,  and  subscribers  for  five  shares  were  obliged 
to  pay  one-half  of  the  amount  at  once,  and  the 
balance  within  three  months.  Twelve  directors, 
from  whom  a  president  was  chosen,  were  elected, 
and  the  latter,  with  two  inspectors,  was  to  con- 
trol the  bank's  affairs.  Thomas  Willing  was 
elected  president.  Its  notes  were  receivable  for 
duties  and  taxes  in  all  the  States,  and  in  settle- 
ment of  interstate  transactions  were  accepted  as 
specie.  Its  charter  was  perpetual  and  the  bank 
was  given  the  right  to  hold  property  to  the 
amount  of  10,000,000  Spanish  milled  dollars. 
After  its  charter  had  been  granted,  those  opposed 
to  it  continued  to  question  the  constitutionality 
of  that  proceeding;  so  to  allay  all  doubt  a  charter 
was  obtained  from  the  State  of  Pennsylvania, 
April  1,  1782,  and  under  this  the  Bank  of  North 

61 


A   CENTRAL   BANK 

America  transacted  business  until  it  became  a 
national  bank  in  1863.  The  Government  sub- 
scribed for  663  shares,  for  which  Robert  Morris, 
Superintendent  of  Finance,  paid  $254,000,  out  of 
$470,000  in  silver  which  had  been  brought  from 
France.  The  Government  became  a  large  bor- 
rower of  the  bank,  receiving  $1,249,975,  of  which 
it  paid  $996,581  in  cash  and  surrendered  its  stock 
in  payment  of  the  remainder.  So  well  did  it 
regulate  the  financial  policy  of  that  time,  and  so 
skilful  was  its  management,  other  paper  issues 
were  driven  out  of  circulation;  its  notes  were 
equivalent  in  value  to  specie;  and,  from  its  ex- 
tensive circulation,  it  was  able  to  pay  a  half- 
yearly  dividend  of  Ay2  per  cent,  in  1782,  the  first 
year  of  its  existence,  despite  the  heavy  organiza- 
tion expenses  incurred.  Three  years  after  its 
establishment  its  notes  circulated  everywhere  at 
par,  and  its  capital  was  increased  to  $2,000,000. 
In  1789,  Alexander  Hamilton  became  Secretary 
of  the  Treasury,  and  shortly  afterward  advocated 
the  establishment  of  a  Federal  bank.  Although 
fully  cognizant  of  the  constructive  services  of 
the  Bank  of  North  America  he  contended  that 
as  its  charter  from  the  Colonial  Congress  had 
not  been  confirmed,  or  renewed,  by  the  Federal 
Congress,  and,  moreover,  that  as  the  bank  was 
doing  business  under  the  Pennsylvania  charter, 

62 


EARLY   FEDERAL  BANKS   OF   ISSUE 

it  was  a  State  and  not  a  Federal  bank.  Accord- 
ingly, he  recommended  the  incorporation  of  the 
Bank  of  the  United  States. 

After  a  protracted  debate  as  to  the  authority 
of  Congress  to  institute  a  bank,  Hamilton's  bill 
was  passed  by  Congress  on  February  25,  1791. 
Up  to  the  last  Thomas  Jefferson  and  Edmund 
Randolph  advised  President  Washington  not  to 
sign  the  bill,  but  the  counsel  of  Hamilton  was 
more  persuasive  and  the  first  President  approved 
the  bill  creating  the  first  Bank  of  the  United 
States.  Its  capital  was  $10,000,000,  divided  into 
25,000  shares  of  $400  each.  One-fourth  of  all  the 
private  and  corporate  subscriptions  was  to  be 
paid  in  gold  and  silver,  and  three-fourths  in 
United  States  stock  bearing  6  per  cent,  interest. 
The  number  of  directors  was  twenty-five,  to  be 
elected  annually  by  and  from  the  stockholders, 
and  all  were  to  be  citizens  of  the  United  States. 
One  of  the  directors  was  to  be  chosen  president. 
Not  more  than  three-fourths  of  the  directors 
were  eligible  for  re-election,  but  the  president 
could  always  be  re-elected.  Stockholders  were 
given  votes  in  proportion  to  their  holdings,  thirty 
being  the  highest  number  of  votes  to  any  one 
"person,  co-partnership  or  body  politic."  "Stock- 
holders actually  resident  within  the  United 
States,"  read  the  charter,  "and  none  other,  may 

63 


A   CENTRAL   BANK 

vote  in  elections  by  proxy."    This  was  intended 
to  prevent  all  attempts  at  foreign  control. 

Any  number  of  stockholders,  not  less  than 
sixty,  who  possessed  in  the  aggregate  two  hun- 
dred shares,  could  call  a  meeting  of  the  stock- 
holders for  purposes  relative  to  the  institution, 
by  giving  ten  weeks'  notice  in  two  newspapers, 
of  the  purposes  of  such  meeting.  Note  issues 
were  limited  only  by  the  general  provision  re- 
stricting "the  total  amount  of  the  debts,  whether 
by  bond,  bill,  note  or  other  contract,"  to  ten 
millions  of  dollars,  over  and  above  the  bank's 
deposits;  and  the  bills  or  notes  of  the  bank,  made 
payable  on  demand  in  gold  and  silver  coin,  were 
receivable  for  dues  to  the  Government.  Branches 
might  be  established  for  deposit  and  discount 
wherever  the  directors  saw  fit,  and  the  charter 
of  the  bank  was  to  run  for  twenty  years.  In  the 
charter  provision  was  made  for  a  subscription  of 
one-fifth  of  the  stock  of  the  bank  by  the  Govern- 
ment, the  bank  making,  in  return,  a  loan  to  the 
Government  equal  to  the  amount  subscribed, 
which  was  to  be  repaid  in  ten  annual  instalments 
of  $200,000  each,  bearing  interest  at  6  per  cent. 
(When  the  Bank  of  England  was  founded  in 
1694,  the  whole  of  the  sum  subscribed  as  its 
capital,  £1,200,000,  was  lent  to  the  British  Gov- 
ernment, and  was  turned  into  the  exchequer.) 

64 


EARLY   FEDERAL  BANKS   OF   ISSUE 

Of  its  capital,  $4,700,000  was  reserved  for  the 
central  institution  at  Philadelphia,  and  the  re- 
mainder was  divided  among  eight  branches  at 
New  York,  Baltimore,  Boston,  Washington, 
Newport,  Charleston,  Savannah,  and  New  Or- 
leans. Within  two  hours  after  subscriptions  to 
the  capital  had  been  opened,  the  full  amount  was 
oversubscribed  4,000  shares.  In  its  commercial 
dealings  the  bank  was  singularly  successful.  It 
advanced  moneys  to  the  Government  frequently 
and  in  large  amount.  In  1792,  the  Government 
owed  the  bank  $2,556,595,  and  at  the  end  of  1795, 
$6,200,000.  This  indebtedness  eventually  cost 
the  Government  its  stock  in  the  bank.  Failing 
to  realize  enough  on  a  sale  of  Government  5  per 
cent,  stock,  in  1797  it  sold  the  bulk  of  its  bank 
holdings  at  $500  a  share — a  premium  of  $100  a 
share,  and  the  proceeds  were  applied  to  the  Gov- 
ernment's indebtedness  to  the  bank.  Shortly 
after  this  transaction  several  hundred  additional 
shares  of  the  Government's  bank  stock  were  sold, 
and  in  1802  the  remainder  was  transferred  at  an 
advance  of  45  per  cent.  The  Government  there- 
upon ceased  to  be  a  stockholder.  According  to 
Secretary  Gallatin's  report  the  Government's 
profit  on  the  sale  of  its  bank  stock  was  $671,860, 
in  addition  to  its  annual  dividends  at  8}i  per 
cent.     On  its  original  investment  during  eleven 

65 


A   CENTRAL   BANK 

years  the  Government  made  a  profit  of,  approxi- 
mately, 57  per  cent. 

The  bank  was  a  strict  regulator  of  State  bank 
note  issues,  and  during  its  existence  disbursed 
more  than  $100,000,000  of  the  Government's 
money  without  one  dollar's  loss.  The  Govern- 
ment, according  to  Secretary  Gallatin,  derived 
an  advantage  from  this  bank  in  that  (1)  the 
public  moneys  were  safely  kept;  (2)  public 
moneys  were  properly  transmitted;  (3)  revenue 
was  promptly  collected,  and  (4)  the  Govern- 
ment's loans  were  financed.  In  1809  he  recom- 
mended increasing  its  capital  to  $30,000,000,  per- 
mitting the  States  to  subscribe  $15,000,000.  Con- 
gress was  not  prepared  to  go  this  far,  but  the 
House  of  Representatives  on  April  21,  1810,  ap- 
proved an  application  for  a  renewal  of  the  bank's 
charter.  Nothing  further  was  done,  however, 
and  on  January  24,  1811,  the  bill  for  renewal  was 
postponed  indefinitely,  by  a  majority  of  one  vote, 
in  the  House,  and  defeated  by  the  Vice-Presi- 
dent's vote  in  the  Senate.  The  fact  that  almost 
two  thousand  shares  of  the  bank's  stock  were 
held  abroad  created  an  intense  opposition  to  its 
being  re-chartered.  Despite  the  fact  that  under 
the  charter  foreign  stockholders  could  neither 
become  directors  nor  vote  by  proxy,  members  of 
Congress  made  speeches  on  the  danger  of  such 


EARLY    FEDERAL   BANKS    OF   ISSUE 

an  accumulation  of  foreign  capital,  and  likened  it 
to  an  engine  for  the  destruction  of  civil  liberty. 
One  even  claimed  that  George  III.  w^as  a  prin- 
cipal stockholder;  and  Henry  Clay  declared  his 
belief  that  in  case  of  a  war  with  England  the 
English  Premier  would  control  the  bank.  The 
refusal  of  Secretary  Gallatin  to  make  certain 
political  appointments  won  for  him  the  hostility 
of  certain  powerful  interests  in  the  Senate,  who 
consequently  opposed  the  bank  because  he  fa- 
vored it. 

On  January  24,  1811,  Secretary  Gallatin's  re- 
port showed  the  bank's  resources  at  $24,183,046, 
the  principal  items  being:  $14,578,294  in  loans 
and  discounts;  $2,750,000  in  Government  6  per 
cent,  stock;  and  $5,009,567  in  specie.  Its  liabili- 
ties were:  Capital,  $10,000,000;  circulating 
notes,  $5,037,125;  individual  deposits,  $5,900,423, 
and  Government  deposits,  $1,929,999.  It  paid 
an  average  annual  dividend  of  8  per  cent,  up  to 
March,  1809.  Thus  passed  the  first  Federal  cen- 
tral bank  of  issue  in  this  country,  a  victim  to  the 
pestilential  influence  of  party  spirit  that  predis- 
posed men's  minds  to  estimate  the  propriety  of  a 
measure,  or  of  an  institution,  according  to  the 
proponent,  or  director,  rather  than  according 
to  its  real  fitness,  quality,  or  usefulness. 


67 


A   CENTRAL   BANK 

In  the  history  of  American  finance  the  one 
man  pre-eminently  head  and  shoulders  above  all 
others  is  Alexander  Hamilton,  whose  untimely 
death  at  Aaron  Burr's  hands  in  1804,  robbed  the 
nation  of  a  statesman  and  financier  of  remark- 
able vision  and  power.  The  friend  of  the  Bank 
of  the  United  States,  in  1795,  in  his  essays  in 
defence  of  the  Jay  treaty  with  Great  Britain,  he 
drove  from  the  field,  by  force  of  his  irresist- 
ible logic  and  masterly  powers  of  argument, 
those  who,  at  that  date,  were  advancing  the  same 
artificial  reasons,  which  Mr.  Clay  and  others  re- 
vamped and  used  to  prevent  the  renewal  of  the 
charter,  aforementioned,  sixteen  years  later. 
While  Hamilton  lived  to  expose  and  shatter  the 
contentions  of  the  bank's  enemies  they  made  little 
headway,  and  more  than  anything  else  did  his 
essays  contribute  to  check,  and  turn  the  other 
way,  what  seemed  to  be  an  irresistible  popular 
feeling  at  that  time.  When  it  is  recalled  that  the 
bank's  charter  was  refused  by  a  single  vote  in  the 
House  of  Representatives,  as  well  as  in  the  Sen- 
ate, the  following  excerpt  from  one  of  his  essays, 
signed  *'Camillus,"  written  in  1795,  should  serve 
to  convince  the  reader  of  the  utter  unreasonable- 
ness of  the  arguments  which  led  to  the  bank's 
downfall,  and  of  the  nation's  irreparable  loss  in 
Hamilton's  death: 

68 


EARLY   FEDERAL  BANKS   OF   ISSUE 

"7t  is  further  said,  that  under  the  protection  of  this  stipu- 
lation the  king  of  Great  Britain,  who  has  already  speculated 
in  our  funds  (the  assertors  would  be  puzzled  to  bring  proof 
of  the  fact),  may  engross  the  whole  capital  of  the  Bank  of  the 
United  States,  and  thereby  secure  the  uncontrolled  direction  of 
it;  that  he  may  hold  the  stock  in  the  name  of  the  ambassador, 
or  of  some  citizen  of  the  United  States,  perhaps  a  Senator,  who, 
if  of  the  virtuous  twenty,  [Those  who  advised  to  a  ratification 
of  the  treaty]  might  be  proud  of  the  honor;  that  thus  ouf 
citizens,  in  time  of  peace,  might  experience  the  mortification 
of  being  beholden  to  British  directors  for  the  accommodations 
they  might  want;  that,  in  time  of  war,  our  operations  might  be 
cramped  at  the  pleasure  of  his  Majesty,  and  according  as  he 
should  see  fit  or  not  to  accommodate  our  government  with 
loans;  and  that  both  in  peace  and  war  we  may  be  reduced  to 
the  abject  condition  of  having  the  whole  capital  of  our  national 
bank  administered  by  his  Britannic  Majesty. 

"Shall  I  treat  this  rhapsody  with  seriousness  or  ridicule? 

"The  capital  of  the  Bank  of  the  United  States  is  ten 
millions  of  dollars,  little  short,  at  the  present  market  price,  of 
three  millions  of  pounds  sterling;  but,  from  the  natural  opera- 
tion of  such  a  demand,  in  raising  the  price,  it  is  not  probable 
that  much  less  than  four  millions  sterling  would  suffice  to 
complete  the  monopoly.  I  have  never  understood,  that  the 
private  purse  of  his  Britannic  Majesty,  if  it  be  true,  as  asserted, 
that  he  has  already  witnessed  a  relish  for  speculation  in  our 
funds  (a  fact,  however,  from  which  it  was  natural  to  infer  a 
more  pacific  disposition  toward  us),  was  so  very  ample  as  con- 
veniently to  spare  an  item  of  such  size  for  a  speculation  across 
the  Atlantic.  But,  perhaps,  the  national  purse  will  be  brought 
to  his  aid.  As  this  supposes  a  parliamentary  grant,  new  taxes, 
and  new  loans,  it  does  not  seem  to  be  a  very  manageable  thing, 
without  disclosure  of  the  object;  and,  if  disclosed,  so  very 
unexampled  an  attempt  of  a  foreign  government  would  present 
a  case  completely  out  of  the  reach  of  all  ordinary  rules,  justi- 
fying, by  the  manifest  danger  to  us,  even  war  and  the  confis- 
cation of  all  that  had  been  purchased.  For  let  it  be  remem- 
bered, that  the  article  does  not  protect  the  public  property 
of  a  foreign   government,  prince,   or  state,    independent  of  the 

69 


A   CENTRAL   BANK 

observation  just  made,  that  such  a  case  would  be  without  the 
reach  of  ordinary  rules.  It  may  be  added,  that  an  attempt  of 
this  kind,  from  the  force  of  the  pecuniary  capital  of  Great 
Britain,  would,  as  a  precedent,  threaten  and  alarm  all  nations. 
Would  consequences  like  these  be  incurred? 

"But  let  it  be  supposed  that  the  inclination  shall  exist,  and 
that  all  difficulties  about  funds  have  been  surmounted — still,  to 
effect  the  plan,  there  must  be,  in  all  the  stockholders,  a  willing- 
ness to  sell  to  the  British  king  or  his  agents,  as  well  as  the  will 
and  means,  on  his  part,  to  purchase.  Here,  too,  some  impedi- 
ments might  be  experienced;  there  are  persons  who  might 
choose  to  keep  their  property  in  the  shape  of  bank  stock,  and 
live  upon  the  income  of  it,  whom  price  would  not  readily  tempt 
to  part  with  it.  Besides,  there  is  an  additional  obstacle  to 
complete  success, — the  United  States  are  themselves  the  pro- 
prietors of  two  millions  of  the  bank  stock. 

"Of  two  things,  one,  either  the  monopoly  of  his  Britannic 
Majesty  would  be  known  (and  it  would  be  a  pretty  arduous  task 
to  keep  it  a  secret,  especially  if  the  stock  was  to  stand,  as 
suggested,  in  the  name  of  his  ambassador),  or  it  would  be 
unknown  and  concealed  under  unsuspected  names.  In  the 
former  supposition,  the  observations  already  made  recur.  There 
would  be  no  protection  to  it  from  the  article;  and  the  extra- 
ordinary nature  of  the  case  would  warrant  anything.  Would  his 
Majesty  or  the  Parliament  choose  to  trust  so  large  a  property 
in  so  perilous  a  situation? 

"If,  to  avoid  this,  the  plan  should  be  to  keep  the  operation 
unknown,  the  most  effectual  method  would  be  to  place  the  stock 
in  the  names  of  our  own  citizens.  This,  it  seems,  would  be 
attended  with  no  difficulty,  since  even  our  Senators  would  be 
ambitious  of  the  honor;  and  if  they  should  have  qualms  and 
fears,  others  more  compliant  could,  no  doubt,  be  found  amongst 
the  numerous  sectaries  or  adherents  of  Great  Britain  in  our 
country;  probably  some  of  the  patriots  would  not  be  inexor- 
able, if  properly  solicited.  Or,  in  the  last  resort,  persons  might 
be  sent  from  Great  Britain  to  acquire  naturalization  for  the 
express  purpose. 

"In  this  supposition,  too,  the  article  would  be  at  the  least 
innocent.      For   its  provisions  are   entirely   foreign   to   the   case 

70 


EARLY   FEDERAL  BANKS   OF   ISSUE 

of  stock  standing  in  the  names  of  our  own  citizens.  It  neither 
enlarges  nor  abridges  the  power  of  the  Government  in  this 
respect. 

"Further,  how  will  the  article  work  the  miracle  of  placing 
the  bank  under  the  management  of  British  directors?  It  gives 
no  new  rights,  no  new  qualifications. 

"The  constitution  of  the  bank  (section  the  5th,  7th  of  the 
act  of  incorporation)  has  provided,  with  solicitude,  these  im- 
portant guards  against  foreign  or  other  sinister  influence:  1. 
That  none  but  a  citizen  of  the  United  States  shall  be  eligible 
as  a  director.  2.  That  none  but  a  stockholder,  actually  resident 
within  the  United  States,  shall  vote  in  the  elections  by  proxy. 
3.  That  one-fourth  of  the  directors,  who  are  to  be  elected 
annually,  must  every  year  go  out  of  the  direction.  4.  That  a 
director  may,  at  any  time,  be  removed  and  replaced  by  the 
stockholders  at  a  general  meeting.  5.  That  a  single  share  shall 
give  one  vote  for  directors,  while  any  number  of  shares,  in  the 
same  person,  copartnership,  or  body  politic,  will  not  give  more 
than  thirty  votes. 

"Hence  it  is  impossible  that  the  bank  can  be  in  the  manage- 
ment of  British  directors — a  British  subject  being  incapable  of 
being  a  director.  It  is  also  next  to  impossible  that  an  undue 
British  influence  could  operate  in  the  choice  of  directors,  out 
of  the  number  of  our  own  citizens.  The  British  king,  or  British 
subjects  out  of  the  United  States,  could  not  even  have  a  vote  by 
attorney,  in  the  choice.  Schemes  of  secret  monopoly  could  not 
be  executed,  because  they  would  be  betrayed,  unless  the  secret 
was  confined  to  a  small  number.  A  smail  number,  no  one  of 
whom  could  have  more  than  thirty  votes,  would  be  easily  over- 
ruled by  the  more  numerous  proprietors  of  single  or  a  small 
number  of  shares,  with  the  addition  of  the  votes  of  the  United 
States. 

"But  here  again  it  is  to  be  remembered  that  as  to  combina- 
tion with  our  own  citizens,  in  which  they  were  to  be  ostensible 
for  any  pernicious  foreign  project,  the  article  under  considera- 
tion is  perfectly  nugatory.  It  can  do  neither  good  nor  harm, 
since  it  merely  relates,  as  to  the  exemption  from  confiscation 
and  seizure  on  our  part,  to  the  known  property  of  British 
subjects. 

71 


A   CENTRAL   BANK 

"It  follows,  therefore,  that  the  dangers  portrayed  to  us 
from  the  speculative  enterprises  of  his  Britannic  Majesty  are 
the  vagaries  of  an  overheated  imagination,  or  the  contrivances 
of  a  spirit  of  deception;  and  that  so  far  as  they  could  be  sup- 
posed to  have  the  least  color,  it  turns  upon  circumstances  upon 
which  the  treaty  can  have  no  influence  whatever.  In  taking 
pains  to  expose  their  futility  I  have  been  principally  led  by  the 
desire  of  making  my  fellow-citizens  sensible,  in  this  instance,  as 
in  others,  of  the  extravagancies  of  the  opposers  of  the  treaty." 


n 


EARLY   FEDERAL  BANKS   OF   ISSUE 

II. 

Jefferson  had  been  opposed  to  the  Bank  of 
the  United  States  from  its  very  inception,  and 
during  his  administration  the  atmosphere  was 
dift'erent  from  what  it  had  been  under  the  Fed- 
erahsts.  In  a  letter  to  Gallatin,  dated  July  12, 
1803,  Jefferson  wrote:  "I  am  decidedly  in  favor 
of  making  all  the  banks  republican  by  sharing 
deposits  among  them  in  proportion  to  the  dis- 
positions they  show."  Retribution  was  at  hand, 
however,  for  the  enemies  of  the  Bank  of  the 
United  States.  The  war  of  1812  followed  and 
the  exigencies  of  that  engagement  conclusively 
demonstrated  the  utter  inadequacy  of  the  State 
banks  to  respond  to  the  nation's  demands.  In 
1814  south  of  New  England  every  State  bank 
had  suspended  specie  payments  and  as  almost 
one  hundred  of  them  had  been  selected  as  Gov- 
ernment depositories,  the  operations  of  the 
Treasury  were  almost  paralyzed.  Transfers  of 
funds  from  one  section  to  another  were  rendered 
impossible  because  the  note  issues  of  banks  in 
one  section  did  not  pass  current  in  other  sections. 
Had  the  Bank  of  the  United  States  been  in  ex- 
istence then,  the  threatened  national  ruin  would 
have  been  averted.  With  that  institution  re- 
moved, there  remained  practically  no  check  upon 
the  redemption  of  State  bank  note  issues,  and 

73 


A    CENTRAL   BANK 

the  country  was  flooded  with  bank  notes,  and 
with  unchartered  currency  in  note  denomina- 
tions from  six  cents  upward! 

In  this  dilemma  many  proposals  were  made 
to  improve  the  currency.  Jefferson  thought  a 
$20,000,000  issue  of  Government  promissory 
notes,  and  an  appeal  to  the  States  to  discontinue 
chartering  banks,  would  prove  efficacious.  Sec- 
retary Dallas  opposed  "the  desperate  expedient 
of  a  tender  law,"  and  recommended  a  new  bank 
with  a  capital  of  $50,000,000,  empowered  to  lend 
$30,000,000  to  the  Treasury,  and  leaving  to  the 
discretion  of  the  President  of  the  United  States 
the  suspension  of  specie  payments.  Daniel 
Webster  arraigned  the  latter  feature  so  power- 
fully, it  was  withdrawn,  but  the  President  vetoed 
the  bill.  In  December,  1815,  President  Madison 
advised  Congress  to  create  a  national  bank  to 
restore  specie  payments,  and  Dallas  was  again 
the  engineer.  The  bill  creating  the  second  Bank 
of  the  United  States  was  approved  on  April  10, 
1816.  Its  capital  was  $35,000,000,  divided  into 
350,000  shares  of  $100  a  share.  The  Govern- 
ment took  one-fifth  of  the  capital  stock,  giving 
a  stock  note  therefor,  which,  incidentally,  re- 
mained unpaid  in  full  until  1831.  The  remain- 
ing four-fifths  wxre  taken  by  "individuals,  com- 
panies,  or   corporations,"   in   allotments   not   to 

74 


EARLY   FEDERAL  BANKS   OF   ISSUE 

exceed  in  any  one  case  3,000  shares.  Public 
subscriptions  were  payable  as  follows:  One- 
fourth  in  gold  or  silver  coin,  and  three-fourths 
in  instalments  in  coin,  or  in  the  funded  debt  of 
the  United  States.  The  charter  was  to  expire 
on  March  3,  1836  (twenty  years),  and  the  di- 
rectors were  twenty-five  in  number,  five  of  whom 
were  appointed  by  the  President  annually,  and 
twenty  elected  by  the  qualified  stockholders  on 
the  first  Monday  in  January  of  each  year.  A 
sliding  scale  of  votes  in  proportion  to  the  num- 
ber of  shares  of  stock  held,  with  a  maximum 
vote  of  thirty,  was  provided  for  in  the  charter, 
and  only  stockholders  actually  resident  in  the 
United  States  could  vote  by  proxy.  One-fourth 
of  the  directors  had  to  retire  each  year,  and 
one  of  the  President's  appointees;  and  only  citi- 
zens of  the  United  States,  resident  therein,  were 
eligible  for  directors.  The  bank  was  authorized 
to  establish  branches  and  to  issue  notes,  not  ex- 
ceeding its  $35,000,000  capital,  which  were  made 
"receivable  in  all  payments  to  the  United  States." 
No  other  bank  was  to  be  chartered  by  Congress, 
without  the  District  of  Columbia,  during  the 
twenty  years  aforementioned,  and  for  all  these 
privileges  the  Government,  in  lieu  of  the  usual 
loan,  was  to  receive  a  bonus  of  $500,000  annually 
for  three  years,  the  first  payment  to  be  made  at 

75 


A   CENTRAL   BANK 

the  end  of  the  second  year.     A  most  important 
and  vital  provision  in  the  charter  read: 

SEC.  16.  And  be  it  further  enacted,  that  the  deposits  of  the 
money  of  the  United  States,  in  places  in  which  the  said  bank 
and  branches  thereof  may  be  established,  shall  be  made  in  said 
bank  or  branches  thereof,  unless  the  Secretary  of  the  Treasury 
shall  at  any  time  otherwise  order  and  direct;  in  which  case 
the  Secretary  of  the  Treasury  shall  immediately  lay  before 
Congress,  if  in  session,  and  if  not,  immediately  after  the  com- 
mencement of  the  next  session,  the  reasons  of  such  order  or 
direction." 

This  was  the  lever  with  which  President 
Jackson  overturned  the  Bank  of  the  United 
States  in  his  long  struggle  to  destroy  it. 

This  institution  had  a  stormy  career  from  its 
very  outset.  Its  note-issuing  privilege  in  no 
sense  restricted  the  State  bank  issues,  which,  as 
has  been  stated  previously,  were  notoriously  in- 
flated; and  in  its  endeavors  to  curb  this  evil  and 
restore  specie  payments,  it  incurred  the  wrath 
of  the  State  banks,  and  of  private  exchange 
dealers  as  well,  who  were  shorn  of  their  profits, 
by  the  bank's  domestic  exchange  policy.  In  en- 
deavoring to  reduce  the  circulation  of  the  State 
banks,  some  commercial  distress  and  much  re- 
sentment followed.  The  States  determined  to  try 
what  effect  taxation  would  have  as  a  deterrent, 
and,  accordingly.  North  Carolina,  Kentucky, 
Tennessee,  Ohio  and  Maryland  laid  taxes  on  the 
circulation,    or   on    the    branches,    of    the    bank. 

16 


EARLY   FEDERAL  BANKS   OF   ISSUE 

Maryland's  was  the  most  drastic  attempt.  It 
passed  a  law  requiring  the  bank  to  purchase 
stamped  paper  for  the  printing  of  its  circulating 
notes,  or  to  pay  an  annual  tax  of  $15,000  for  its 
Baltimore  branch.  The  law  was  ignored  and  the 
cashier  of  the  bank,  William  McCulloch,  was 
sued  by  the  State  of  Maryland.  The  case  was 
decided  by  the  Supreme  Court  of  the  United 
States,  in  favor  of  the  Bank  of  the  United  States, 
and  is  now  one  of  the  leading  constitutional 
decisions  from  the  pen  of  the  great  constitutional 
authority,  Chief  Justice  Marshall.  The  case  is 
known  as  McCulloch  v.  Maryland,  and  holds 
that  (1)  the  power  to  create  a  national  bank,  to 
assist  in  carrying  on  the  fiscal  operations  of  the 
Government,  is  within  the  implied  powers  of  the 
Constitution;  and  (2)  the  Constitution  of  the 
United  States  places  beyond  the  pale  of  State 
authority  all  the  powers  conferred  on  the  Fed- 
eral Government,  and  all  the  powers  necessarily 
implied  to  carry  those  powers  into  execution. 

Within  a  year  from  its  opening — January  7, 
1817 — the  bank  was  in  distress.  Its  Baltimore 
branch  was  used  as  a  speculating  machine,  stock- 
holders giving  their  notes  for  the  second  and 
third  instalments  of  their  subscriptions — instead 
of  making  payment  in  coin  or  in  funded  debt  of 
the  Government — and  borrowing  on  the  pledge 

77 


A   CENTRAL   BANK 

of  the  stock  and  their  personal  notes.  This 
trading  in  the  shares  before  they  were  paid  for 
led  to  much  speculation  and  to  a  rise  in  the  price 
of  the  shares.  Loans  were  made  at  the  increased 
values  by  the  bank,  which,  of  course,  were  forced 
and  unstable  and  disappeared  into  thin  air  when 
the  speculators  had  achieved  their  point,  and  as 
a  result,  the  bank  lost  $1,671,221.  Nor  could  the 
bank's  policy  for  the  restoration  of  specie  pay- 
ments be  commended.  The  bank  had  imported 
more  than  $7,000,000  in  specie  from  Europe  dur- 
ing 1817  and  1818,  but  on  April  21,  1819,  had 
less  than  $50,000  in  specie,  of  its  own,  in  its 
Philadelphia  vaults.  A  Congressional  inquiry 
revealed  this  fact,  and  there  was  a  demand  for 
a  repeal  of  the  bank's  charter.  A  new  president, 
Langdon  Cheves,  however,  helped  to  tide  the 
bank  over  its  difficulties  at  this  time.  He  bor- 
rowed $2,500,000  in  specie  from  the  Barings,  cur- 
tailed the  issue  of  notes  by  the  bank's  branches 
in  the  South  and  West,  and  adopted  regulations 
in  relation  to  the  transfer  and  disbursement  of 
the  Government's  funds,  which  were  serviceable 
to  the  bank.  Henceforth,  until  the  Jackson  out- 
break, the  bank  was  eminently  successful. 

"The  second  Bank  of  the  United  States,"  says 
Mr.  Charles  A.  Conant,  an  eminent  authority  on 
finance,  in  his  History  of  Modern  Banks  of 

78 


EARLY   FEDERAL  BANKS    OF   ISSUE 

Issue,  "undoubtedly  contributed  for  more  than 
a  decade  to  facilitate  the  transfer  of  funds  from 
one  part  of  the  country  to  another  and  to  main- 
tain a  uniform  circulation  equal  to  coin.  The 
rates  of  domestic  exchange,  which  were  neces- 
sarily high  because  of  the  imperfect  means  of 
communication,  were  materially  reduced  by  the 
bank.  Its  policy  greatly  benefited  commerce, 
but  invited  bitter  complaints  from  the  private 
dealers  in  exchange,  who  had  been  enabled  to 
make  excessive  profits  while  the  currency  was 
below  par  because  of  its  different  values  in  dif- 
ferent States  and  the  constant  fluctuations  in 
these  values.  The  bank,  in  the  language  of  the 
report  of  Senator  Smith  of  Maryland  in  1832, 
furnished  'a  currency  as  safe  as  silver,  more  con- 
venient, and  more  valuable  than  silver,  which 
through  the  whole  Western  and  Southern  and 
interior  parts  of  the  Union,  is  eagerly  sought  in 
exchange  for  silver;  which,  in  those  sections, 
often  bears  a  premium  paid  in  silver;  which  is, 
throughout  the  Union,  equal  to  silver,  in  payment 
to  the  Government,  and  payments  to  individuals 
in  business.'  Mr.  McDuffie,  who  submitted  the 
minority  report  in  the  House  at  the  same  time, 
declared  that  'The  whole  business  of  dealing  in 
domestic  bills  of  exchange,  so  essential  to  the 
internal  commerce  of  the  country,  has  been  al- 

79 


A   CENTRAL   BANK 

most  entirely  brought  about  within  the  last  eight 
years.  In  June,  1819,  the  bank  did  not  own  a 
single  dollar  of  domestic  bills;  and  in  December, 
1824,  it  owned  only  to  the  amount  of  $2,378,980; 
whereas  it  now  owns  to  the  amount  of  $23,- 
052,972.'  " 

In  1823  Nicholas  Biddle  became  president 
of  the  bank,  and  the  bank  began  to  prosper  ex- 
ceedingly. It  helped  to  develop  the  nation's  in- 
dustries and  to  finance  the  Government's  wants. 
The  national  debt  between  1823  and  1835  was 
paid,  and  the  stock  of  the  bank  rose  until  it  com- 
manded a  premium  of  20  per  cent.  Its  notes 
circulated  at  par  everywhere  in  the  United 
States;  and,  according  to  Mr.  John  J.  Knox,  in 
his  History  of  Banking,  the  notes  of  the  Bank 
of  the  United  States  at  London,  Paris,  Rome, 
Calcutta,  Cairo,  St.  Petersburg,  and  other 
prominent  cities,  were  within  a  fraction  more, 
or  a  fraction  less  of  their  home  value,  according 
to  the  rate  of  exchange.  At  the  most  remote 
commercial  centres  they  could  be  sold  for  a 
premium. 

In  a  message  to  Congress  in  1829,  President 
Jackson  first  revealed  his  hostility  to  the  bank, 
by  stating  that  it  was  clear  to  all  that  the  bank 
had  failed  in  the  great  end  of  establishing  a  uni- 
form and  sound  currency.    This,  from  the  Presi- 

80 


EARLY   FEDERAL  BANKS   OF   ISSUE 

dent,  created  consternation  in  the  public  mind, 
for  the  bank  at  that  time  was  regarded  as  one  of 
the  pillars  of  the  nation.  His  real  reason  for  the 
stricture  was  political  and  not  financial.  It  ap- 
peared that  Jeremiah  Mason,  manager  of  the 
Portsmouth,  New  Hampshire,  branch,  had 
aroused  the  ire  of  a  local  politician,  one  Levi 
Woodbury,  over  his  constructive  efforts  to  cor- 
rect the  previous  bad  management  of  that  branch 
and  to  contract  its  discounts.  Woodbury  wrote 
to  the  Secretary  of  the  Treasury  complaining 
of  Mason's  direction  of  the  bank,  and  that  offi- 
cial sent  the  communication  to  Nicholas  Biddle, 
president  of  the  bank.  The  latter  replied,  deny- 
ing mismanagement  or  political  favor  in  the 
conduct  of  the  Portsmouth  branch,  and  stating, 
unnecessarily,  that  the  directors  of  the  Bank  of 
the  United  States  acknowledged  no  responsi- 
bility to  the  Secretary  of  the  Treasury  in  regard 
to  the  political  opinions  of  the  bank's  officers, 
and  that,  under  its  charter,  it  was  not  subject  to 
Executive  control.  One  Isaac  Hill  had  complained 
to  President  Jackson  of  the  partiality  shown  by 
Mason  to  the  President's  political  opponents  in 
New  Hampshire,  and  set  forth  that  no  measure 
short  of  Mason's  removal  would  reconcile  the 
people  of  New  Hampshire  to  the  bank. 

As  a  result,  committees  from  the  House  and 

81 


A    CENTRAL   BANK 

Senate  investigated  the  bank  and  exonerated  it 
from  the  charge  of  bad  management.  But  that 
was  not  to  save  it.  Henry  Clay,  Jackson's  bit- 
terest opponent,  determined  to  make  the  re- 
chartering  of  the  bank  an  issue  in  the  approach- 
ing pohtical  campaign.  Consequently  Biddle 
and  the  bank  were  forced — reluctantly,  doubt- 
less— to  take  sides,  and  when  the  bill  for  a  re- 
newal of  the  bank's  charter  passed  Congress, 
Jackson  promptly  vetoed  it,  and  was  sustained 
at  the  polls,  receiving  219  electoral  votes  to 
Clay's  49,  and  18  scattering.  During  1832  and 
1833  the  bank  made  two  serious  mistakes.  It 
ignored  the  directions  of  the  Secretary  of  the 
Treasury  in  relation  to  the  payment  of  a  $5,000,- 
000  debt  due  the  Barings  by  the  Government, 
assuming  the  obligation  itself  privately,  in  order 
to  use  the  Government  deposits  in  the  discount 
market  for  its  own  benefit.  When  this  was  made 
known  it  did  not  improve  the  relations  between 
the  President  and  the  bank,  and  when,  for 
alleged  damages  arising  out  of  a  fiscal  transac- 
tion with  France  for  the  Government,  it  de- 
ducted a  certain  amount  from  the  Government's 
dividends,  and  lost  its  case  when  sued  by  the 
Government,  Jackson  made  up  his  mind  to  deal 
the  bank  a  death-blow.  That  was:  to  withdraw 
the    public    deposits    in    its    custody.     He,  also, 

82 


EARLY  FEDERAL  BANKS  OF  ISSUE 

feared  that  the  bank  might  be  enabled,  through 
the  use  of  the  pubHc  deposits,  to  buy  up  votes 
in  Congress  to  secure  a  two-thirds  majority  and 
pass  a  re-charter  bill  over  his  veto. 

Thenceforth  the  influence  of  the  bank  de- 
clined, and  although  it  obtained  a  charter  from 
the  State  of  Pennsylvania,  and  paid  the  Govern- 
ment $7,000,000  for  its  stock,  it  suspended  in 
1837,  and  v^ent  into  liquidation  in  1841.  Jackson 
ordered  his  Secretary  of  the  Treasury  to  deposit 
the  public  moneys  in  "friendly"  State  banks  un- 
der certain  conditions,  and  in  the  general  sus- 
pension in  1837,  the  Government  lost  about 
$2,500,000  through  the  payment  of  its  deposits 
in  depreciated  bank-notes.  The  panic  of  1837 
induced  President  Van  Buren  to  recommend  to 
Congress  that  the  public  funds  be  kept  exclu- 
sively by  public  ofiicers  and  that  only  specie  be 
accepted  for  debts  due  the  Government.  This 
plan  became  a  law  in  1840,  was  repealed  in  1841, 
and  re-enacted  in  1846,  giving  us  our  present 
independent  treasury  system.  Two  later  at- 
tempts were  made  to  establish  a  central  bank, 
but  without  success.  Two  bills,  intended  to 
charter  a  Fiscal  Bank  of  the  United  States, 
passed  both  branches  of  Congress  in  1841  to 
encounter  the  veto  of  President  Tyler. 


83 


PLANS  FOR  A  CENTRAL  BANK. 
New  York  Chamber  of  Commerce  Plan:    On 

October  4,  1906,  a  special  committee  of  the  New 
York  Chamber  of  Commerce,  appointed  in 
March,  1906,  to  inquire  into  the  condition  of  the 
currency  and  to  suggest  desirable  changes,  sub- 
mitted an  elaborate  and  exhaustive  report  of  its 
proceedings  to  the  Chamber.  Therein  was  set 
forth  that  suggestions  were  sought  by  circular 
letter  from  members  of  the  Clearing  House  Com- 
mittees of  the  principal  cities,  consultations  were 
held  with  leading  bankers  in  the  United  States, 
and  the  experience  of  the  heads  of  the  chief 
European  banks  of  issue  was  sought  by  letter 
and  by  personal  visits  of  one  of  the  members  of 
the  committee.  The  committee  consisted  of  the 
following  gentlemen:  John  Claflin,  chairman; 
Frank  A.  Vanderlip,  Isidor  Straus,  Dumont 
Clarke  and  Charles  A.  Conant.  As  a  result  of 
its  seven  months'  investigation  the  committee 
reported  in  favor  of  the  establishment  of  a  cen- 
tral bank,  in  the  following  language: 

"In^our  opinion,  the  best  method  of  providing  an  elastic  credit 
currency,  the  volume  of  which  could  never  be  excessive,  would  be 
the  creation  of  a  central  bank  of  issue  under  the  control  of  the 
Government.  This  central  bank  should  have  branches  in  the  lead- 
ing cities,  and  should  have  dealings  only  with  banks.  Although 
its  capital  stock  might  be  privately  owned  or  distributed  among 
the   banking    institutions    of    the    country,    it    should    be    under    the 

85 


A   CENTRAL   BANK 

direct  control  of  a  board  of  governors  appointed,  at  least  in  part, 
by  the  President  of  the  United  States,  for  it  should  perform  some 
of  the  functions  now  imposed  upon  the  United  States  Treasury-, 
and  should  at  the  same  time  be  managed  not  exclusively  for  private 
gain  but  for  the  public  good  as  well.  This  bank  should  have  a 
large  capital,  not  less  than  $50,000,000.  It  should  carry  a  large 
reserve  of  gold  and  should  act  as  custodian  of  the  metallic  reserves 
of  the  Government  and  as  its  agent  in  redeeming  all  forms  of 
credit  money.  It  should  also  be  receiving  and  disbursing  agent  for 
the  Government,  doing  at  its  branches  the  work  now  done  at  the 
sub-treasuries.  It  should  hold  the  five  per  cent,  redemption  fund 
now  deposited  in  the  Treasury  by  the  national  banks  for  the  cur- 
rent redemption  of  their  bond-secured  notes,  and  should  redeem 
national  bank  notes  both  at  its  central  office  and  at  all  of  its 
branches." 

This  is,  indeed,  a  most  concise  and  construct- 
ive outline  of  what  a  central  bank  should  con- 
form to,  leaving  the  question  of  its  ownership  to 
public  determination,  but  insisting  that  the 
piMic  good  be  served  as  highly  as  private  gain. 
Thereunder  we  would  be  assured  an  elastic 
currency,  responsive  to  the  varying  needs  of 
business,  and  of  comparative,  if  not  absolute, 
uniformity  in  interest  rates;  for  the  resources  of 
the  bank  would  enable  it  to  meet  extraordinary 
or  sudden  demands  for  both  capital  and  cur- 
rency. Moreover,  it  would  relieve  the  Treasury 
of  the  duties  of  issue  and  redemption,  and  by 
virtue  of  its  relations  with  the  money  market 
could  protect  itself  against  a  prolonged  drain 
upon  its  reserves,  which  the  Treasury  is  unable 
to  do.     While  by  eliminating  the  sub-treasury 

86 


PLANS    FOR    A    CENTRAL    BANK 

system  it  would  keep  the  public  moneys  at  the 
disposal  of  the  country's  business. 

Reynolds  Plan:  Mr.  George  M.  Reynolds, 
president  of  the  Continental  National  Bank, 
Chicago,  in  his  address  to  the  American  Bank- 
ers' Association,  of  which  he  was  then  president, 
in  Chicago,  on  September  14,  1909,  presented  to 
that  representative  body  of  the  nation's  bankers 
what  must  be  regarded  as  a  singularly  clear, 
comprehensive  and  salient  plan  for  the  estab- 
lishment of  a  central  bank.  Condensed,  his  plan 
reads: 

A  central  bank  in  fact  as  well  as  in  name,  with  powers  and 
functions  restricted  to  the  needs  of  business,  so  that  it  would  be 
the  servant  and  not  the  master  of  business.  Its  capital  should  be 
large  enough  to  command  respect  and  confidence — not  less  than 
$100,000,000,  and  might  be  subscribed  for  by  the  national  banks,  or 
sold  to  the  public  under  a  guarantee  of  a  small  dividend  by  the 
Government,  with  the  latter  sharing  in  the  surplus  profits.  It 
should  be  the  fiscal  agent  of  the  Government  and  its  depository  for 
public  moneys ;  but  it  should  not  be  given  the  power  to  support  the 
public  credit,  as  that  should  be  done  by  the  Government  itself  and 
by  the  people  in  an  individual  capacity.  To  give  the  Government 
supervision  over  it  and  to  make  the  bank,  at  the  same  time,  the 
instrument  to  maintain  the  public  credit  would  be  incongruous  and 
indefensible.  It  should  also  receive  as  deposits  the  funds  of  national 
banks  in  the  three  central  reserve  cities,  acting  as  reserve  depository 
for  banks  in  these  cities.  Branches  should  be  conducted  where 
sub-treasuries  are  now  maintained  and  at  other  necessary  points. 
This  would  do  away  with  all  sub-treasuries.  Its  discounts  should 
be  restricted  to  short-time  credits — ninety  days — created  in  the 
actual  conduct  of  business,  representing  real  transactions  between 
two  or  more  solvent  concerns,  and  bearing  a  solvent  endorsement, 
in  addition.     It  should  be  a  bank  of  discount   for  national  banks 

87 


A   CENTRAL   BANK 

and  for  the  public,  but  not  a  bank  to  receive  deposits  from  the 
public.  It  should  issue  its  own  notes  and  hold  as  security  therefor, 
a  percentage  of  coin  reserve  and  the  commercial  paper,  afore- 
mentioned. The  government  of  the  bank  should  be  similar  to  that 
of  the  Imperial  Bank  of  Germany — the  Federal  supervising  repre- 
sentatives being  appointed  jointly  by  the  President,  Secretary  of  the 
1  Treasury  and  Controller  of  the  Currency,  and  confirmed  by  the 
!  Senate.  A  majority  of  this  board  should  hold  over  for  eight  con- 
secutive years,  to  provide  against  executive  or  administration  in- 
fluence through  two  Presidential  terms.  The  stockholders  should 
select  another  board  to  confer  with  the  Federal  board,  but  to  pre- 
vent political  or  syndicate  control,  the  Federal  board  should  have 
full  power  to  appoint  the  directors  and  president  of  the  bank  for 
long  terms,  or  for  life,  subject  to  removal  for  incapacity  or  mal- 
feasance. No  paper  representing  speculative  transactions  should  be 
admissible  in  discount  matters.  Upon  the  retirement  of  the  national 
bank  circulation  of  the  present,  the  central  bank  should  have  the 
■exclusive  right  of  note  issue. 

Mr.  Reynolds  believes  that  public  participa- 
1ion  in  the  ownership  of  the  bank  would  popu- 
larize it,  and  make  it  a  People's  rather  than  a 
Banker's  bank.  In  the  more  thoughtful  expres- 
sions upon  this  subject  this  idea  is  uppermost. 
To  establish  such  a  bank,  it  is  recognized,  it  must 
be  instituted  to  serve  popular  necessity  and  not 
syndicated  wealth.  Another  belief  is  that  the 
bank  should  interfere  as  little  as  possible  with 
the  privileges  of  existing  banks,  and  in  Mr. 
Reynolds'  suggestion  as  to  its  becoming  the  de- 
pository for  banks  in  central  reserve  cities  lies 
a  recommendation  helpful  to  this  end.  While 
the  loss  of  public  deposits  to  national  banks 
through  their  transference    to    a    central    bank 

88 


PLANS    FOR   A    CENTRAL    BANK 

might  occasion  some  inconvenience,  the  greater 
security  afforded  them,  through  the  existence  of 
a  central  bank,  more  than  offsets  it.  The  short- 
time  credit  mentioned  in  this  plan  is  undoubtedly 
the  very  best  security  for  a  note  issue.  High- 
grade  commercial  paper,  in  the  opmion  of  all 
enlightened  bankers  to-day,  is  the  best  asset  in 
a  bank;  for  in  the  ordinary  course  of  business 
it  is  promptly  paid,  and  the  completion  of  each 
transaction  retires  automatically  the  bank's  cur- 
rency. Government  bonds  or  real-estate  mort- 
gages w^ill  not  do  this.  The  provision  of  Mr. 
Reynolds  for  the  central  bank^s  currency  to  re- 
place the  national  bank  circulation  gradually, 
and  as  that  declines  with  the  extinction  of  the 
public  debt,  is  in  accordance  with  the  writer's 
views  on  this  subject,  expressed  more  than  a 
year  ago.  It  is  the  one  certain  way  to  overcome 
this  difficulty  without  embarrassing  national 
banks  or  imperiling  their  interests.  Mr.  Rey- 
nolds' provision  against  syndicate  control,  or 
political  influence,  is  original  and  unique.  His 
prohibition  against  the  employment  of  the  bank 
as  an  agency  to  support  the  Government's  credit, 
through  bond-market  transactions,  goes  right  to 
the  root  of  the  defective  system  of  to-day,  and 
shows,  conclusively  and  reassuringly,  his  pur- 
pose, at  least,  to  amend  that  economic  error.    As 

89 


A   CENTRAL   BANK 

to  the  creation  of  two  boards  to  administer  the 
bank's  affairs,  inasmuch  as  that  institution  which 
is  least  governed  is  best  governed,  one  board,  it 
seems,  surrounded  with  the  safeguards  he  recom- 
mends, should  suffice. 

Ridgely  Plan:  Mr.  William  B.  Ridgely,  presi- 
dent of  the  National  Bank  of  Commerce,  Kansas 
City,  Missouri,  when  Controller  of  the  Currency, 
in  his  annual  report  made  public  on  December 
16,  1907,  strongly  recomimended  the  establish- 
ment of  a  central  bank.  This  action  on  the  part 
of  an  officer  of  the  Treasury  occasioned  consid- 
erable comment;  but  with  the  experiences  of  the 
panic  of  that  year  fresh  in  his  memory,  Mr. 
Ridgely  determined  that  propriety  would  be  best 
served  by  "talking  right  out  in  meeting,"  and 
that  he  thereupon  did.  His  courage  and  his  zeal 
are  equally  commendable,  and  if  a  central  bank 
is  to  be  established,  w^e  must  regard  Mr.  Ridgely 
as  one  whose  efforts  contributed  largely  to  that 
end.     In  substance,  he  recommended: 

A  central  bank  under  Government  control  to  prevent  monopoly 
by  private  interests,  or  political  dictation.  The  control  should  be 
divided  between  directors  elected  by  the  shareholders  and  directors 
chosen  by  the  Government,  two-thirds  by  the  former  and  one-third 
by  the  latter.  Its  business  should  be  confined  to  Government 
transactions,  to  the  receipt  of  public  revenues  and  the  disbursement 
of  Federal  payments,  to  the  issuance  of  credit  notes,  receipt  of 
reserve  deposits  from  other  banks,  and  to  rediscounting  paper  on 
approved  security  for  other  banks.     It  should  not  conduct  a  general 

90 


PLANS    FOR    A    CENTRAL    BANK 

or  commercial  business.  It  should  have  the  right  to  deal  in  Gov- 
ernment bonds,  and,  probably,  State  and  municipal  bonds,  but  not  in 
stocks.  And  in  foreign  exchange  transactions  it  should  have  au- 
thority to  accumulatl'foreign  gold  credits  to  enable  it  to  import 
gold  and  bullion  when  needed  for  its  reserves.  It  should  have  a 
main  office  in  Washington  and  branches  in  reserve  cities,  sub-treas- 
ury cities,  and  wherever  necessary.  Its  credit  notes  should  be  se- 
cured in  part  by  a  large  gold  reserve,  the  remainder  to  be  covered 
by  Government  bonds,  or  by  the  notes  discounted  for  other  banks. 
Its  stock  might  be  apportioned  among  the  banks,  the  public  and  the 
Government,  with  a  limit  to  the  amount  held  by  any  individual; 
but  the  better  plan  would  be  to  have  the  national  banks  subscribe 
for  the  stock  in  proportion  to  their  capital.  The  bank  should  be 
conducted  for  the  general  welfare,  not  with  a  view  of  making 
profits ;  and  after  paying  a  small  dividend — a  moderate  surplus  being 
first  accumulated — the  remainder  of  its  profits  should  be  divided 
on  some  equitable  basis  between  the  shareholders  and  the  Govern- 
ment. The  bank  should  not  alter  in  any  way  the  present  bond- 
secured  circulation ;  and  the  Government's  directors  should  have  the 
right  to  veto  transactions  deemed  inimical  to  the  Government  or 
public  interests. 

The  reader  will  note  Mr.  Ridgely's  emphasis 
upon  the  fact  that  a  central  bank  is  to  be  con- 
ducted for  the  general  welfare  and  not  for  profit, 
and,  as  well,  his  provision  against  monopoly  or 
political  interference.  He  would  protect  the  ex- 
isting banks  also,  by  confining  the  central  bank 
to  dealings  with  the  Government  and  with  banks 
only;  but  his  recommendation  that  the  bank  be 
located  in  Washington  is  not  generally  con- 
curred in.  New  York  is  favored  by  some,  and 
Chicago  by  others — the  former  because  of  its 
importance  as  the  centre  of  American  finance; 
the  latter  because  of  its  increasing  financial  in- 

91 


A   CENTRAL   BANK 

fluence,  and  its  proximity  to  the  harvest  fields 
and  to  that  section  of  the  country  which  is  yet  in 
the  infancy  of  its  development,  the  demands 
from  which  must  be  enlarged  with  the  years. 
(The  writer  favors  Chicago  as  the  logical  loca- 
tion of  a  central  bank,  and  has  written  editorially 
in  support  of  the  metropolis  of  the  Middle 
West.)  The  organization  of  a  central  bank  upon 
such  a  basis  of  limited  profits  and  widely  dis- 
tributed ownership,  would  certainly  remove  the 
objection  that  it  was  a  private  banking  organiza- 
tion engaged  in  a  general  banking  business,  as 
was  said  of  the  former  Bank  of  the  United  States. 
Gage  Plan:  Mr.  Lyman  J.  Gage,  former  Sec- 
retary of  the  Treasury,  was  an  early  believer  in 
the  serviceableness  of  a  central  bank,  and,  almost, 
a  decade  ago,  had  outlined  a  plan  for  the  estab- 
lishment of  such  an  institution.  No  holder  of 
the  Treasury  portfolio  was  ever  more  aware  of 
the  defects  in  our  currency  system,  or  expressed 
himself  more  emphatically,  pointedly,  and  withal 
felicitously  thereon  than  Mr.  Gage.  From  an 
address  of  Mr.  A.  Barton  Hepburn,  delivered  in 
March,  1902,  the  writer  abstracts  the  following 
outline  of  Mr.  Gage's  plan: 

"The  scheme  of  Secretary  Gage,  as  elucidated  by  subse- 
quent utterances,  is  substantially  as  follows:  He  suggested  a 
federated  bank,  and  used  the  Federal  Government  in  its  rela- 
tions to  the  State  and  local  governments  to  illustrate  his  banking 

92 


PLANS    FOR    A    CENTRAL    BANK 

idea.  He  would  take,  for  instance,  the  four  thousand-odd 
national  banks  of  the  country,  with  their  capital  exceeding  one 
billion  dollars,  and  let  each  bank  subscribe  to  the  stock  of  the 
central  or  federated  bank  in  proportion  to  its  capital,  say  5 
per  cent.  That  would  create  a  central  bank  with  a  capital  of 
$50,000,000.  Let  this  bank  be  controlled  by  a  board  of  directors 
elected  by  the  stockholding  banks,  each  $1,000  being  entitled 
to  one  vote — the  central  bank  to  keep  accounts  and  do  busi- 
ness with  the  stockholding  banks  only;  that  is,  to  be  a  bank 
of  banks.  It  might  perhaps  be  allowed  to  loan  its  funds  on 
demand  upon  collateral  in  order  to  increase  its  profits  when 
there  was  no  demand  for  funds  on  the  part  of  any  of  its  con- 
stituent banks ;  but  it  should  not  receive  the  accounts  of  cor- 
porations or  individuals.  It  should  be  essentially  a  bank  of 
banks — a  depository  of  the  public  moneys  of  the  Government, 
thus  doing  away  with  the  sub-treasury  system  and  keeping 
the  funds  of  the  Government  in  commercial  channels,  instead 
of  locking  the  same  up  as  now;  this  central  bank  to  have 
supervision  over  its  constituent  members  or  stockholders,  with 
the  power  to  make  examinations  as  now  exercised  by  the 
office  of  the  Controller  of  the  Currency — to  have  the  right  to 
issue  bank-note  circulation  against  its  general  assets  or  its 
credit,  and  in  times  of  necessity  to  be  allowed  to  issue,  with  a 
capital  of  $50,000,000,  $200,000,000  of  circulating  notes  — the 
Government  not  to  be  represented  in  the  directory  or  official 
management  of  the  institution — such  a  bank  to  have  branches 
at  important  points,  as,  for  instance,  where  the  sub-treasuries 
or  mints  exist  at  the  present  time." 

In  the  provision  for  the  control  of  the  bank 
the  Gage  plan  differs  materially  from  those  more 
recently  proposed.  "No  Government  control !'' 
says  Mr.  Gage.  Also,  in  the  suggestions  that  it 
might  make  individual  loans  on  demand;  that  it 
be  empowered  to  examine  the  afifairs  of  its  con- 
stituents   and    have    general    supervision    over 

93 


A   CENTRAL   BANK 

them;  and  that  the  Hmit  of  its  emergency  cur- 
rency be  placed  at  $200,000,000,  it  differs  mark- 
edly from  later  recommendations  The  Gov- 
ernment regulation  is  welcomed  by  almost  every 
other  proponent  on  this  question,  while  they  are 
silent  as  to  the  central  bank's  right  to  supervise 
its  constituent  banks,  and,  also,  generally  as  to 
limiting  its  circulation.  In  this  latter  case,  they 
seem  willing  to  leave  the  quantity  to  commercial 
demand. 

Roberts  Plan:  Mr.  George  E.  Roberts,  presi- 
dent of  the  Commercial  National  Bank,  Chicago, 
and  former  Director  of  the  Mint,  is,  perhaps,  the 
one  banker  in  this  country  who  has  been  heard 
most  frequently  in  oral  support  of  a  central  bank. 
To  the  press  and  public  of  America  his  name,  in 
connection  with  the  advocacy  of  such  an  institu- 
tion, is  well  known;  and  the  following  condensa- 
tion of  Mr.  Roberts'  views  on  the  organization 
of  a  central  bank,  was  furnished  by  him  at  the 
special  request  of  the  writer.  It  embodies  his 
latest  expression  upon  this  subject: 

"In  providing  the  capital  for  a  central  banking  institution, 
the  main  object  to  be  secured  is  that  of  so  distributing  the 
stock  and  voting  power  that  all  sections  of  the  country  will 
be  represented  in  the  control,  and  receive  due  consideration  at 
the  hands  of  the  management.  It  seems  to  me  that  the  best 
plan  would  be  to  place  the  stock  with  the  national  banks  on 
the  basis  of  their  capital.  This  would  give  us  a  federated 
system    with   the    central    bank    at    the    head  and    all    the    local 

94 


PLANS    FOR    A    CENTRAL    BANK 

banks  interested  in  it.  On  the  other  hand  I  see  no  objection 
to  selling  the  stock  in  small  lots  to  private  investors  under 
a  government  guaranty  of,  say,  a  four  per  cent,  dividend,  pro- 
vided the  voting  rights  were  limited  to  a  few  shares.  In  the 
former  case  the  board  of  directors  might  be  elected  by  terri- 
torial districts;  in  the  latter  case  by  the  leading  clearing  houses 
of  the  country.  No  better  method  of  securing  a  board  could 
be  devised  than  that  of  having  twenty-five  of  the  principal 
clearing  houses  each  select  a  member.  It  would  give  sufficient 
distribution  of  the  memberships  to  afford  representation  to 
every  part  of  the  country,  it  would  assure  bankers  of  well 
known  character  and  experience,  and  the  selections  would 
include  members  of  all  political  parties.  Such  a  board  would 
keep  the  institution  out  of  politics  and  beyond  the  control  of 
any  locality  or  interest.  To  suppose  that  twenty-five  men 
thus  chosen  would  conspire  to  make  the  institution  serve  private 
interests,  or  could  be  hoodwinked  into  doing  so,  is  an  assump- 
tion too  unworthy  and  unreasonable  to  be  entertained.  If 
that  kind  of  a  body  of  men  cannot  be  relied  upon  to  be  faith- 
ful to  a  public  trust,  representative  government  must  be 
acknowledged   to   be   a   failure. 

"In  my  opinion  the  Government  should  be  represented  in 
the  management  by  a  separate  board  of  five  members,  of 
which  the  Secretary  of  the  Treasury,  the  Treasurer  of  the 
United  States  and  the  Controller  of  the  Currency  should  be 
three  and  the  other  two  be  men  of  banking  experience  named 
by  the  President  of  the  United  States.  This  board  should  have 
a  general  supervision  over  the  affairs  of  the  bank  similar  to 
that  exercised  by  the  Controller  over  national  banking,  but 
no  initiative.  The  principal  officers  should  be  elected  by  the 
board  of  directors,  subject  to  approval  by  the  government  board. 
The  latter  board  should  choose  an  auditor  for  each  office  of 
the  institution,  with  whatever  help  is  required  to  enable  him  to 
keep  a  complete  check  upon  all  transactions  for  its  direct 
information.  The  profits — above  moderate  dividends  on  the 
shares — should  be  divided  with  the  Treasury. 

"I  think  the  institution  should  be  started  with  the  least 
possible    disturbance    of    existing    banking    conditions.      It    is 

95 


A    CENTRAL   BANK 

desirable  to  avoid  a  heavy  burden  of  expenses  until  its  earning 
powers  are  demonstrated,  and  a  multiplication  of  offices  is  not 
required  in  order  to  realize  the  chief  benefits  of  the  system. 
It  is  not  likely  that  in  actual  practice  the  smaller  banks  of 
the  country  will  care  to  deal  with  the  central  bank.  The 
latter  will  pay  no  interest  on  deposits  and  having  no  commer- 
cial business  its  relations  with  the  local  banks  will  never  be 
as  intimate  as  those  between  the  latter  and  their  regular  reserve 
city  correspondents.  The  central  bank  can  never  know  each 
of  the  20,000  banks  in  the  country  as  well  as  they  are  known 
to  the  several  hundred  banks  of  the  reserve  cities,  or  ever  do 
business  with  them  under  as  liberal  rules.  The  assistance  of 
the  central  bank  would  naturally  reach  the  local  banks  through 
their  reserve  city  correspondents. 

"The  system  thus  organized  would  have  the  advantages  of 
the  branch  bank  system  while  preserving  the  flexibility  and 
responsiveness  of  our  present  system  of  independent  local  banks. 

"I  would  not  change  any  of  the  provisions  of  the  present 
system  as  to  reserves,  except  that  the  national  banks  of  the 
Central  reserve  cities  might  be  allowed  to  keep  as  much  of  their 
reserves  as  they  pleased  in  the  central  bank.  I  would  not  disturb 
the  present  bond-secured  circulation. 

"In  order  to  provide  the  central  institution  with  lending 
power,  I  would  make  its  notes  good  for  every  purpose  for 
which  gold  certificates  are  now  used,  and  have  its  notes  put 
into  circulation  in  exchange  and  substitution  for  those  certif- 
icates. This  could  be  readily  accomplished  through  the 
relations  of  the  central  bank  to  the  other  banks  of  the  country. 
As  the  central  bank  acquires  possession  of  the  outstanding  gold 
certificates  it  could  present  them  at  the  Treasury  for  redemption, 
and  in  this  way  the  hoard  of  gold  now  held  in  the  Treasury 
could  be  transferred  to  the  vaults  of  the  central  bank  and  the 
outstanding  gold  certificates  retired  and  cancelled.  When  this 
process  was  completed  the  central  bank  would  have  over 
$800,000,000  of  gold  in  its  vaults,  with  an  equal  amount  of  notes 
outstanding,  and  as  the  issuance  of  Treasury  certificates  would 
cease,  our  future  additions  to  our  gold  stock  would  naturally 
go    into    the    vaults    of    the    central    bank    in    exchange    for    its 

96 


PLANS    FOR    A    CENTRAL    BANK 

notes.  Here  then  would  be  the  basis  for  a  great  reserve  fund 
of  credit.  Our  central  bank  would  have  a  greater  gold  reserve 
than  the  Bank  of  France,  and  its  ability  to  issue  approximately 
a  thousand  millions  of  additional  notes,  and  still  have  a  reserve 
of  50  per  cent.,  would  amply  protect  this  country  against 
stringency  and  panic." 

This  plan  differs  from  the  others  herein  in- 
cluded in  some  particulars.  In  the  first  place,  his 
suggestion  to  permit  clearing-houses  to  elect  the 
directors  of  the  bank  is  a  departure,  and  one  not 
without  merit.  His  recommendation  for  general 
supervision  of  the  bank's  affairs  and  for  the  ap- 
pointment of  an  auditor  is  constructive;  while  his 
substitution  of  the  bank's  notes  for  our  present 
gold  certificates  embodies  a  solution  that  seems 
not  only  practicable  but  eminently  persuasive. 
On  the  reserve  question  he  is  not  in  accord  with 
other  recommendations,  but  he  joins  in  the  com- 
mon purpose  of  all  to  make  the  central  bank  a 
bank  for  banks  only,  equally  serviceable  to  all 
sections  of  the  country,  and  conducted  along 
lines  of  least  disturbance  to  existing  banking  con- 
ditions and  privileges. 

Harris  Plan:  Another  proponent  of  a  plan 
for  a  central  bank  is  Mr.  Norman  W.  Harris, 
president  of  the  banking  house  of  N.  W.  Harris 
and  Company,  New  York  and  Chicago.  Two 
years  ago,  it  may  be  recalled,  Mr.  Harris  ad- 
dressed an  open  letter  on  this  subject  to  Speaker 

97 


A   CENTRAL   BANK 

Cannon,  which  attracted  much  public  attention. 
In  substance,  he  recommends: 

A  large  central  bank  organized  upon  such  lines  as  will 
enure  to  the  advantage  of  the  people  as  a  whole,  and  aid  mate- 
rially in  the  general  development  of  the  country,  rather  than  in 
the  promotion  of  the  interests  of  a  few  large  banks  or  capitalists. 
Its  capital  should  be  an  amount  between  $100,000,000  and 
$250,000,000,  distributed  among  national  and  State  banks  and 
individuals.  The  States  to'  receive  allotments  in  proportion  to 
population,  and  the  banks  on  a  certain  percentage  of  their 
capital  and  surplus.  No  individual's  holding  should  exceed 
$50,000.  Profits  above  AYz  per  cent,  should  be  divided  with  the 
Government.  The  directors  of  the  bank  should  be  graded 
into  classes — one  class  to  be  nominated  by  the  President  and 
confirmed  by  the  Senate;  and  their  terms  of  office  should  run 
from  5  to  lo  years.  The  capital  should  consist  of  specie  in  part, 
the  remainder  being  invested  in  Federal  obligations,  municipal 
bonds  and  first-mortgage  railroad  bonds — generally  known  as 
"savings  bank"  bonds.  Loans  upon  such  municipal  and 
"savings  bank"  bonds  should  not  exceed  85  per  cent,  of  market 
value.  The  bank  should  also  rediscount  for  State  and  national 
banks  bills  receivable  secured  by  agricultural  products,  maturing 
in  ninety  days,  at  most,  up  to  80  per  cent,  of  the  market  value 
of  the  collateral.  Banks'  borrowings  and  discounts  should  be 
limited  to  a  percentage  of  their  unimpaired  capital  and  surplus, 
and  the  bank  should  act  as  fiscal  agent  and  depository  for  the 
Government  and  for  States  and  municipalities  whose  bonds  it 
might  be  entitled  to  purchase.  Neither  deposits  should  be 
received  from,  nor  loans  made  to  private  persons  or  corpora- 
tions,  excepting  the  Federal,  State  and  municipal  governments 
and  the  banks,  aforementioned.  The  bank's  reserve  should  be, 
in  part,  gold,  and  its  currency  should  be  issued  against  its  assets 
aforementioned,  subject  to  a  graded  Government  tax.  Specula- 
tive transactions  should  be  avoided,  and  branches  should  be 
established  in  leading  cities.  Commercial  paper  should  not  be 
used  as  a  basis  for  circulation;    that  should  be  based  on  bonds. 

98 


PLANS    FOR    A    CENTRAL    BANK 

This  is  the  only  plan  offered  by  bankers  on 
this  question  wihch  refuses  to  recognize  the 
soundness  of  commercial  paper  as  security  for 
currency  issues.  Its  capital  is  larger,  too,  than 
in  most  of  the  plans  herein  discussed,  and  in  its 
capital  apportionment  and  allotment  the  plan  is 
at  variance  with  the  majority  of  suggestions 
thereon.  It  is  also  the  only  plan  which  provides 
for  advances  against  agricultural  products.  In 
other  essentials  it  conforms  to  the  general  recom- 
mendations. 

Frame  Plan:  Mr.  Andrew  Jay  Frame,  presi- 
dent of  the  Waukesha  National  Bank,  Waukesha, 
Wisconsin,  favors  the  establishment  of  a  national 
reserve  bank.  He  is  one  of  the  earliest  and  most 
persistent  workers  for  currency  reform,  and  has 
been  heard  in  several  cities  on  that  issue.  Briefly, 
he  favors : 

A  national  reserve  bank  with  a  capital  of  $100,000,000,  con- 
tributed by  national  and  State  banks  on  a  capitalization  basis, 
and,  probably,  by  individuals,  as  well;  no  single  holding  to 
exceed  $250,000.  The  Government  should  be  denied  stock- 
holding privileges.  Twenty-five  directors,  the  Secretary  of  the 
Treasury  being  one,  serving  four  years  each — six  to  retire  annu- 
ally— to  elect  the  president  and  active  officers  of  the  bank. 
Only  a  bank  director  or  officer  of,  at  least,  lo  years'  experience 
to  be  eligible  to  the  directorate  or  for  office  in  the  bank.  One 
director  to  be  nominated  by  the  stockholders  at  each  State 
Bankers'  Convention,  and  a  complete  list  of  the  nommees  to  be 
mailed  to  all  the  stockholders  thirty  days  in  advance  of  the 
annual  meeting.     The  surplus  funds  of  the  Treasury,  in  excess 

99 


A   CENTRAL   BANK 

of  normal  daily  requirements,  should  be  deposited  in  the  bank, 
and  one-half  of  the  reserves  of  banks  in  central  reserve  cities. 
Deposits  might  be  accepted  from  banks,  too;  but  interest  should 
not  be  paid  on  deposits  of  any  sort.  Currency  should  be  issued 
untaxed  to  the  extent  of  $100,000,000.  The  capital  might  be 
mvested  in  Federal,  State  or  municipal  bonds,  and  "also  part  of 
its  untaxed  currency  issues,"  using  "its  deposits  in  generous 
reserves  and  the  balance  loaned  on  quickly  convertible  paper." 
After  providing  for  a  surplus  of  20  per  cent,  a  dividend  of  4  per 
cent,  should  be  paid,  and  from  the  excess  the  stockholders 
should  receive  enough  to  make  their  dividend  6  per  cent.,  when 
the  remainder  of  the  profits  should  be  paid  to  the  Government 
in  lieu  of  taxation.  The  profits  received  by  the  Government  to 
be  paid  in  gold  and  to  be  converted  into  gold  certificates  for 
the  redemption  of  United  States  notes.  The  Government  two 
per  cent,  bonds  to  be  limited  to  an  aggregate  issue  of 
$600,000,000,  the  excess  outstanding  to  be  purchased  by  the 
bank  at  their  market  value,  using  an  equal  amount  of  its 
untaxed  currency  for  the  purpose.  Government  bonds,  here- 
after, not  to  be  used  for  circulation  purposes.  No  branch  banks 
to  be   established  by  this   institution. 

The  plan  resembles  the  Harris  recommenda- 
tion in  some  respects,  but  differs  from  nearly  all 
other  plans  in  its  prohibition  against  branches, 
and  its  neutrality  as  to  the  elimination  of  the  sub- 
treasury  system.  The  plan  for  the  nomination 
of  directors  is  not  coherent;  for  how  could  the 
individual  stockholders  have  a  voice  at  State 
Bankers'  Conventions?  This  feature  is  cumber- 
some and  introduces  an  element  not  connected 
with  the  bank  at  all.  Mr.  Frame's  suggestion  as 
to  the  retirement  of  United  States  notes  is  cer- 
tainly novel. 

100 


PLANS    FOR    A    CENTRAL    BANK 

Vreeland  Plan:  Mr.  Edward  B.  Vreeland, 
chairman  of  the  Committee  on  Banking  and  Cur- 
rency, House  of  Representatives,  and  member  of 
the  National  Monetary  Commission,  believes  a 
central  bank  would  round  out  and  complete  our 
present  banking  system.  He  in  no  sense  ex- 
presses the  opinion  of  the  National  Monetary 
Commission,  but,  in  view  of  his  connection  with 
that  body  and  of  his  position  in  Congress,  his 
outline  possesses  interest.    Briefly,  it  is: 

A  distinctively  American  institution  with  a  capital  of 
$100,000,000  in  gold,  owned  by  State  and  national  banks,  up  to 
5  per  cent,  of  their  capital  and  surplus.  The  business  of  this 
bank  should  be  confined  to  dealings  with  banks  and  with  the 
Government,  and  to  foreign  exchange  transactions.  Dividends 
should  be  limited  to  4  or  5j/2  per  cent.;  all  earnings  in  excess 
to  be  divided  with  the  Government.  By  some  gradual  process 
it  should  assume  sole  note-issuing  functions,  having  redeemed 
the  greenbacks  and  treasury  notes.  The  bank  should  be  man- 
aged by  directors  elected  by  the  stockholders,  with  Treasury 
officials  members  ex  officio.  As  to  whether  its  president,  or 
governor,  should  be  appointed  by  the  Government  for  a  term 
of  years,  or  elected  by  the  directors,  the  plan  is  undecided;  and, 
likewise,  as  to  the  restraining  influence  of  the  Government. 
The  bank  should  be  an  element  of  strength  to  the  existing  banks, 
not  a  rival  or  competitor. 

Hansbrough  Bill:  During  the  winter  of  1907- 
8  several  bills  for  currency  reform  were  pre- 
sented to  Congress,  following  the  panic.  Among 
these  were  two  for  a  central  bank:  one,  in  the 
Senate,  by  Senator  H.  C.  Hansbrough,  of  North 

101 


A   CENTRAL   BANK 

Dakota;  the  other,  in  the  House  of  Representa- 
tives, by  Representative  Charles  V.  Fornes,  of 
New  York.  The  Hansbrough  bill  provided  for 
the  creation  of: 

A  central  bank,  chartered  for  fifty  years,  with  capital 
equal  to  10  per  cent,  of  aggregate  capital  of  national  banks, 
and  to  be  taken  by  those  banks  pro  rata:  shares  to  be  non- 
negotiable  except  in  case  of  liquidation  of  a  bank,  when  they 
should  be  purchased  by  the  United  States  at  par  and  used  for 
new  banks;  shares  to  be  counted  as  part  of  lawful  money 
reserves  of  banks;  and  one-half  of  reserves  of  banks  permitted 
to  be  held  in  other  banks  to  be  held  in  the  central  bank.  The 
country  to  be  divided  into  sixteen  districts;  head  office  at 
Chicago,  with  such  branches  as  the  Treasury  may  approve. 
Direction  to  be  in  a  "council"  of  21  members,  of  whom  four, 
the  chief  Treasury  officers  ex  officio,  the  others  from  the  several 
districts,  elected  by  shareholders  for  six-year  terms;  the  council 
to  choose  a  governor  and  deputies.  Notes  to  the  amount  of 
$300,000,000  to  be  issuable  on  bills  receivable  and  bonds  owned 
by  the  bank;  and  in  emergency  further  issues  without  limit, 
to  the  amount  of  gold  deposited  in  the  Treasury,  subject  to  a 
one-eighth  per  cent,  annual  tax.  Loans  to  be  made  to  any  one, 
upon  bonds  to  40  per  cent,  of  their  market  value,  and  upon 
warehoused  grain  and  cotton  to  60  per  cent,  of  their  market 
value;  to  rediscount  for  any  bank  upon  satisfactory  security 
(not  real  estate,  mortgages  or  bank  shares) ;  no  loans,  how- 
ever, to  have  more  than  120  days  to  run.  The  bank  to  hold  a 
40  per  cent,  lawful  money  reserve  against  deposits,  to  deal 
in  bonds,  exchange  and  specie;  to  pay  dividends  out  of  profits 
to  4  per  cent.,  then  place  2  per  cent,  in  surplus;  any  further 
divisible  profits  to  be  shared  equally  with  the  Government;  and 
to   be  subject  to   Government  inspection. 

Fornes  Bill : 

Provided  for  a  Government  central  bank  with  a  fifty-year 
charter  and  a  capital  of  $100,000,000.     The  Government  was  to 

102 


PLANS    FOR    A    CENTRAL    BANK 

take  three-fifths  and  national  banks  the  remainder  on  a  capital 
and  surplus  basis.  The  bank  was  to  be  located  in  New  York 
and  to  operate  nine  branches.  Directors  were  to  be  twenty- 
five  in  number,  elected  by  shareholders,  and  were  to  hold  office 
for  six  years.  Secretary  of  Treasury,  Controller  of  the  Currency 
and  Treasurer  of  the  United  States  were  to  be  members  ex 
officio.  An  executive  committee,  including  the  federal  officers, 
of  seven  was  to  be  appointed.  The  bank  was  to  issue 
$100,000,000  in  notes  redeemable  through  capital  and  loan 
them  to  commercial  banks,  subject  to  %  per  cent,  tax  and  4 
per  cent,  interest  for  a  term  not  to  exceed  one  year  upon 
security  acceptable  to  New  York  and  Massachusetts  savings 
banks.  Further  issues  up  to  $400,000,000  could  be  issued  if 
authorized  by  a  four-fifths  vote  of  the  directors,  upon  the  same 
basis,  but  never  in  excess  of  50  per  cent,  of  the  capital  of  the 
borrowing  bank,  subject  to  the  tax  aforementioned,  and  interest 
rising  from  6  per  cent.  The  bank  might  rediscount  paper,  prop- 
erly secured,  and  running  not  more  than  90  days  for  banks  and 
pay  dividends  of  4  per  cent.  Excess  profits  to  go  to  the 
Government. 

Inasmuch  as  the  Hansbrough  and  Fornes  bills 
failed  of  passage  in  Congress,  the  writer  deems 
it  unnecessary  to  discuss  them.  They  have  been 
included  merely  for  the  reader's  benefit,  to  fur- 
nish an  opportunity  for  a  comparison  of  the  trend 
of  Congressional  opinion  with  the  expressed 
thought  of  prominent  bankers  on  the  central 
bank  question. 

Wright  Plan:  Perhaps  the  most  unique  plan 
of  all  known  plans  for  a  central  bank  is  that  sub- 
mitted by  Mr.  Charles  A.  Wright,  president  of 
the  Superior  National  Bank  of  Hancock,  Michi- 
gan.    While  all  other  proposals  look  to  an  en- 

103 


A   CENTRAL   BANK 

abling  act  of  Congress  as  a  sine  qua  non,  Mr. 
Wright  points  out  that  his  plan  can  be  accepted 
by  the  banks  of  the  country  under  existing  laws 
without  additional  legislation.   His  suggestion  is: 

To  establish  a  central  bank  for  all  the  banks  of  the  country, 
by  having  these  institutions  contribute  one  per  cent,  of  their 
banking  power  (capital,  surplus,  undivided  profits,  and  deposits) 
toward  its  capital;  and  two  per  cent,  of  their  deposits  as 
reserve  in  the  central  bank.  So  fortified,  the  bank  would  have 
resources  of  $400,000,000  upward.  The  stock  could  be  held 
in  trust  by  the  officers  or  directors  for  the  banks  contributing 
until  legislation  enabled  them  to  own  it  directly.  A  bank 
organized  thus  voluntarily  by  the  banks  themselves,  would 
assure  them  mutual  advantage  and  protection,  and  minimize  the 
dangers  of  present  isolation.  Through  the  employment  of  its 
great  resources  it  could  relieve  distress  in  any  section;  could 
rediscount  for  its  member  banks,  or  make  advances  to  them  on 
good  security;  and  it  could  be  made  a  great  clearing-house  to 
maintain  the  parity  of  domestic  exchange  by  facilitating  the 
exchange  of  bank  collections.  When  given  authority  to  issue 
notes,  it  should  issue  credit  currency  to  the  amount  of  its 
capital  ($100,000,000  at  the  least),  and,  in  addition,  act  as  the 
fiscal  agent  and  depository  of  the  Government.  It  should  be 
located  in  New  York  —  the  heart  of  American  finance  —  and 
should  not  open  branches;  nor  should  it  be  subject  to  Govern- 
mental control,  in  order  to  avoid  political  entanglements.  Its 
directors  should  be  experienced  financiers  chosen  by  the  banks, 
and  it  should  act  as  the  Government's  redemption  agent. 

This  is  an  independent  and  original  recom- 
mendation, and  by  no  means  lacks  endorsement 
among  bankers.  Mr.  Wright  has  corresponded 
with  every  bank — State  and  National — in  the 
system,  expounding  his  particular  theory.  Al- 
most four  hundred  banks  assured  him  of  their 

104 


PLANS    FOR    A    CENTRAL    BANK 

willingness  to  join  in  promoting  a  voluntary  cen- 
tral agency,  and  two  hundred  declared  their 
willingness  to  do  so,  after  Congressional  author- 
ity had  been  obtained.  It  will  be  noted  that  his 
views  as  to  rediscount,  note  issues,  Government 
fiscal  agency,  and  competition  with  other  banks 
are  "orthodox";  but  that  he  differs  from  other 
proponents  on  the  questions  of  Government  con- 
trol, branches,  and  management. 

Treat  Plan:  Mr.  Charles  H.  Treat,  Treas- 
urer of  the  United  States,  favors  the  incorpora- 
tion of  a  National  Clearing  House  Bank,  upon 
the  following  basis: 

The  bank  should  be  a  bank  for  banks  only,  with  a  capital 
of  not  less  than  $200,000,000,  and  not  more  than  $500,000,000. 
National  and  State  banks  and  private  bankers  might  subscribe 
therefor,  but  not  the  public.  The  main  purpose  of  the  bank 
should  be  rediscounting  for  other  banks.  Not  more  than  20 
per  cent,  of  any  single  bank's  capital  should  be  invested  in  the 
national  clearing  house  bank's  stock.  Its  directors  should  rep- 
resent the  groups  of  banks  in  different  sections,  and  should 
meet  twice  a  year.  From  them  a  resident  council,  to  direct  the 
affairs  of  the  bank,  should  be  chosen.  The  Government  should 
have  no  participation,  except  that  of  general  supervision;  but 
the  Secretary  of  the  Treasury,  United  States  Treasurer,  Con- 
troller of  the  Currency,  and  other  Treasury  officials  should  act 
in  an  advisory  capacity.  The  bank  should  be  a  Government 
depository,  and  act  as  reserve  agent  for  national  banks  in  the 
three  central  reserve  cities  and  for  all  member  banks.  It  could 
deal  in  foreign  exchange.  Its  advances  on  discounts  should  not 
exceed  85  per  cent,  of  the  face  value  of  the  security  at  a  rate 
not  exceeding  4  per  cent.;  and  it  should  issue,  in  times  of 
emergency,  national  bank  currency  issued  to  it  by  the  Secretary 

105 


A   CENTRAL   BANK 

of  the  Treasury  upon  approved  commercial  notes  and  securities 
—  indorsed  by  the  discounting  bank,  and  guaranteed  by  the 
national  clearing  house  bank,  to  an  amount  not  exceeding  75 
per  cent,  face  value,  at  a  rate  of  not  more  than  3  per  cent,  per 
annum  with  a  limit  of  credit  of  six  months — to  an  extent  not 
exceeding  60  per  cent,  of  its  paid-up  capital.  It  should  not 
establish  branches. 

This  plan  is  coherent  but  Hmited.  It  recog- 
nizes the  validity  of  commercial  paper  as  a  basis 
for  currency  issues,  but  strangely  continues  the 
present  circulation  unchanged;  for  it  only  pro- 
vides for  the  national  clearing  house  bank's  issu- 
ance of  notes  in  cases  of  extremity.  It  defers 
to  the  best  thought  on  this  question,  that  the 
existing  order  be  not  changed  radically,  and 
consequently  disavows  branches  and  dealings 
with  individuals.  The  rediscounting  feature  is 
given  pre-eminence  wisely,  and  provision  is  made 
for  earning  a  fair  dividend  on  its  stock  by  keep- 
ing on  .deposit  15  per  cent,  of  the  face  amount  of 
each  of  its  discounts.  It  would  doubtless  afford 
unusual  opportunities  for  investment  by  foreign 
or  domestic  bankers  in  this  country's  commercial 
paper,  and  in  times  of  idle  capital  in  Europe 
might  be  utilized  largely. 

Warburg  Plan:  Mr.  Paul  M.  Warburg,  of 
the  banking  firm  of  Kuhn,  Loeb  and  Compan}^, 
New  York,  believing  that  the  country  eventually 
must  develop  some  kind  of  a  central  banking 
system,  to  furnish  an  elastic  currency  based  on 

106 


PLANS    FOR    A    CENTRAL    BANK 

modern  commercial  bills  payable  in  gold,  recom- 
mends the  establishment  of  a  "central  issue  de- 
partment" with  authority  to  emit  additional 
notes  against  certificates  of  guaranty  and  against 
certain  foreign  bills  of  exchange.  Briefly,  his 
plan  reads: 

There  shall  be  established  in  the  city  of  Washington  a  central 
bank  of  issue  with  a  capital  of  $100,000,000.  with  succession  for  a 
period  of  50  years,  unless  sooner  dissolved.  Stock  the^in  Jo  be 
subscribed  and- paid  for  and  thereafter  owned  for  a  period  of 
10  year-S_  by  the  Government.  The  bank  to  be  governed  by  a 
general  council  of  41,  of  whom  12  to  be  elected  by  the  stock- 
holders, 3  by  the  Senate,  and  3  by  the  House  of  Representatives. 
The  Secretary  of  the  Treasury,  the  Treasurer  of  the  United 
States,  the  Controller  of  the  Currency,  and  the  chairman  of  each 
of  20  National  Bank  District  Associations  (to  be  created)  to  be 
members  ex  officio  of  the  council.  The  members  of  the  council 
to  serve  for  one  year,  and  to  elect  a  Governor  to  have  gen- 
eral charge  of  the  bank.  The  active  officers  and  employes  of 
the  bank  to  be  prohibited  from  participating  in  syndicates,  under- 
writings,  stock  investments  in  any  bank  or  trust  company,  under 
penalty  of  fine  and  imprisonment.  General  council  to  appoint 
executive  committee,  consisting  of  Federal  officers  named  and 
eight  of  the  council,  to  perform  delegated  duties^  The  bank  to 
issue  demand  notes  secured  by  gold  bullion,  gold  coin,  legal 
tender  notes  of  the  United  States,  or  by  certificates  of  guaranty 
of  the  Bank  District  Associations,  or  foreign  bills  to  be  provided 
for  in  the  institution  of  the  bank.  The  bank  to  hold  at  all  times 
gold  or  legal  tender  notes  in  an  amount  not  less  than  one-third 
of  the  aggregate  of  its  outstanding  notes,  the  latter  to  be  guar- 
anteed by  the  Government.  The  bank  to  have  power  to  deal 
in  gold  and  silver  bullion;  to  contract  for  loans  of  gold  at  home 
and  abroad,  and  to  maintain  banking  accounts  abroad  for  such 
purposes,  or  for  foreign  exchange  transactions ;  to  make  deposits 
of  cash  in  banks  in  the  United  States,  when  secured  by  the 
guaranty  certificates  aforementioned,  and  to  make  loans  on  such 

107 


A   CENTRAL   BANK 

certificates.  Loans  or  deposits  not  to  exceed  90  days  in  either 
case,  at  rates  fixed  from  time  to  time,  by  the  general  council. 
To  deal  in,  to  purchase  and  to  sell,  short  and  long  bills  payable 
in  England,  France  or  Germany,  not  exceeding  90  days,  and 
signed  by  3  responsible  persons,  one  a  bank  or  banker  in  good 
standing.  To  receive  Government  deposits  without  security, 
and  to  act  as  its  agent  when  called  upon.  Similarly,  to  receive 
deposits  from  member-banks  of  the  District  Associations,  to  be 
counted  by  the  depositors  as  part  of  their  lawful  money  reserve. 
Not  to  deal  in  real  estate  or  securities,  except  Government 
issues,  or  in  contingencies  covered  by  Section  5137  of  the  Re- 
vised Statutes  of  the  United  States  relating  to  national  banks. 
Notes  to  be  received  in  payment  of  all  obligations  at  par,  except 
for  interest  on  the  public  debt  and  for  redemption  of  the  national 
currency.  Twenty  per  cent,  of  the  net  profits  to  be  placed  to 
reserve  until  that  amounts  to  20  per  cent,  of  the  capital.  Divi- 
dends up  to  4  per  cent,  out  of  the  balance  to  be  paid  in  the 
discretion  of  the  directors.  If  a  surplus  remain,  one-fourth  to 
go  to  stockholders  and  three-fourths  to  the  Government.  The 
headquarters  of  the  Bank  District  Associations  aforementioned 
to  be  designated  by  the  Controller  of  the  Currency  upop  the 
passage  of  a  law  establishing  a  bank  as  within  outlined.  Such 
associations  to  be  open  to  both  State  and  national  banks,  and 
to  be  governed  by  a  board  of  managers  of  8  members  in  each 
district,  who  shall  elect  a  ninth  member  as  chairman,  who  there- 
upon shall  become  a  Deputy  Controller  of  the  Currency.j'^^ank 
supervision  of  each  district  to  be  entrusted  to  this  board,  and  \ 
guaranty  certificates  for  use  as  collateral  for  deposits  or  loans  ' 
from  the  central  bank  to  be  issued  by  it  to  the  banks,  upon  the 
deposit  of  adequate  security.  The  banks  to  pay  to  the  District 
Associations  a  certain  amount  which  shall  constitute  a  Guaranty 
Fund  against  loss.  Banks  on  joining  a  District  Association  to 
pay  the  sum  of  $1,000  and  annual  contributions  agreed  upon, 
and  Sub-District  Associations  to  be  formed  when  desirable  by 
a  majority  vote  of  the  banks  in  any  District  Association.  The 
Controller  of  the  Currency  to  meet  the  Deputy  Controllers  every 
six  months  to  hear  reports  on  the  districts,  and  to  preside  at 
such  meetings. 

108 


PLANS    FOR    A    CENTRAL    BANK 

Mr.  Warburg  would  have  the  Government 
retain  its  stock  after  the  ten-year  period  unless 
Congress  by  special  act  permitted  it  to  sell  the 
same.  His  division  of  profits  is  suggested  to 
meet  the  criticism  that  a  group  of  capitalists 
might  buy  control  of  the  bank  for  their  own 
purposes,  if  Congress  deemed  it  advisable  to  sell 
the  stock.  The  restrictions  placed  upon  the 
bank's  transactions  would  render  it  impossible 
for  that  institution  to  engage  in  questionable 
lines,  and  the  limitation  of  the  income  from  the 
stock  would  offer  no  inducement  to  buy  the 
bank's  stock  for  speculative  purposes,  but  rather 
would  lead  to  its  purchase  as  a  Government  in- 
vestment. Political  domination  and  speculative 
control  are  alike  eliminated  under  this  plan,  says 
Mr.  Warburg;  but  it  must  be  admitted  that  there 
is  a  wealth  of  detail  to  be  perfected,  a  multiplicity 
of  offices  to  be  filled,  and  a  considerable  amount 
of  organization  to  be  completed  before  the  plan 
could  ever  become  operative.  Even  then,  it  intro- 
duces a  "guaranty  certificate"  that  is  rather  em- 
pirical and  has  no  precedent  in  central  banking 
systems. 

Morawetz  Plan:  Mr.  Victor  Morawetz,  of 
New  York,  author  of  The  Banking  and  Cur- 
rency Problem  in  the  United  States,  opposes 
the  central  bank  as  an  undesirable  reform  instru- 

109 


A   CENTRAL   BANK 

ment  for  our  currency  system,  but  believes  that 
a  central  agency  having  power  to  control  the 
volume  of  uncovered  bank-note  currency  in  the 
United  States,  would  serve  that  purpose.  This 
he  suggests  might  be  created  as  follows: 

The  national  banks  to  be  authorized  by  Congress  to  form  an 
association  for  the  sole  purpose  of  issuing  notes  upon  their  joint 
credit.  It  should  have  no  capital  and  receive  no  deposits.  It 
should,  in  effect,  be  a  large  clearing-house  association,  and  be- 
come operative  when  banks  having  a  fixed  aggregate  capital  of 
$250,000,000  joined.  It  should  have  a  managing  board  consisting 
of  from  15  to  21  experienced  bankers  or  business  men  familiar 
with  general  conditions  and  with  financial  operations,  to  control 
its  affairs.  The  Controller  of  the  Currency  should  be  a  member 
ex  officio.  The  board  should  hold  office  for  three  years,  classi- 
fied so  that  one-third  would  be  elected  annually.  Its  action 
afifecting  the  volume  of  outstanding  notes,  or  the  percentage  of 
the  redemption  fund  for  payment  of  the  notes  should  become 
effective  only  when  approved  by  the  Secretary  of  the  Treasury. 
Each  bank  should  have  one  vote  for  each  $25,000  of  its  capital 
stock  for  each  manager  to  be  elected  and  should  have  power  to 
cumulate  its  votes.  The  bank's  principal  ofifice  should  be  in 
Washington,  with  branches  for  issue  and  redemption  purposes 
in  each  city  in  which  there  is  a  sub-treasury,  and  within  two 
years  from  the  date  of  the  association's  establishment,  branches 
should  be  opened  in  every  city  of  the  United  States  with  a 
population  of  100,000  persons.  Meetings  should  be  held  monthly 
in  Washington,  where  an  executive  committee  of  3  should 
reside  permanently  and  meet  daily.  Each  bank  in  the  association 
to  be  permitted  to  take  out  and  issue  notes  up  to  an  amount, 
which,  including  its  present  bond-secured  notes,  would  not 
exceed  its  capital  stock.  And  the  managing  board,  with  the 
approval  of  the  Secretary  of  the  Treasury  should  have  power 
to  increase,  ratably  as  to  all  banks,  the  authorized  amount  of 
their  note  issues,  and  to  reduce  such  increase,  likewise.  Only 
banks  with  paid-up   and  unimpaired  capital   to   take   out  notes, 

110 


PLANS    FOR    A    CENTRAL    BANK 

all  such  notes  to  be  prepared  under  the  Controller's  direction, 
and  the  association  to  be  subject  to  his  supervision  in  all  its 
actions.  As  a  redemption  fund  for  the  payment  of  its  notes 
each  bank  should  keep  on  deposit  with  the  association  a  sum  of 
lawful  money  equal  to  20  per  cent,  of  notes  taken  out,  or  such 
greater  per  cent,  thereof  as  from  time  to  time  may  be  pre- 
scribed; the  redemption  fund  so  created  to  be  administered  by 
the  managers  under  the  Controller  of  the  Currency.  This  fund 
to  be  kept  up  by  the  banks  upon  call,  in  case  of  deficiency.  The 
security  for  these  notes  would  be:  (a)  a  redemption  fund  con- 
sisting of  gold  or  other  lawful  money  amounting  to  a  substantial 
percentage  of  the  notes;  (b)  the  individual  obligation  of  each 
bank  to  redeem  its  notes  and  keep  up  its  redemption  fund;  (c) 
a  safety  fund  to  be  created  by  a  tax  to  be  paid  by  each  bank  on 
the  amount  of  notes  outstanding  in  excess  of  the  lawful  money 
in  its  note-redemption  fund;  (d)  a  deposit  of  United  States 
bonds  by  banks  desiring  to  deposit  bonds  as  security  for  such 
excess;  (e)  the  ultimate  ratable  liability  of  all  the  issuing  banks. 
To  retire  the  present  bond-secured  currency,  no  future  bond 
issues  of  the  Government  should  be  received  as  security  for 
bond-secured  notes;  no  bank,  in  the  proposed  association,  should 
be  permitted  to  issue  bond-secured  notes  to  an  amount  exceed- 
ing 50  per  cent,  of  its  capital  stock;  and  if,  at  the  time  of  becom- 
ing a  member,  any  bank  should  have  outstanding  bond-secured 
notes  to  more  than  50  per  cent,  of  its  capital,  it  should  not  be 
permitted  to  issue  notes  until  the  redemption  of  some  of  its 
outstanding  circulation  reduced  its  volume  below  50  per  cent, 
of  the  capital  stock. 

No  plan  which  the  writer  has  examined  bears 
any  analogy  to  that  of  Mr.  Morawetz,  and, 
similarly,  no  plan  promises  to  provide  currency, 
abundant  and  elastic  for  sudden  demands,  issued 
by  a  central  authority,  so  singularly  free  from 
the  criticism  of  "centralization,"  or  its  related 
contention,  that  political  or  money  power  would 

111 


A   CENTRAL   BANK 

eventually  control  the  institution.  Without  cap- 
ital or  profits  there  is  no  room  for  either  charge. 
The  plan  is  eminently  scientific  in  its  provision 
for  regulating  the  amount  of  outstanding  cur- 
rency by  means  of  the  redemption  fund  which 
the  banks  would  have  to  maintain  on  deposit 
with  the  association  for  the  payment  of  their 
notes.  That  would  always  be  kept  sufficiently 
high  to  furnish  a  basis  for  the  issuance  of  notes 
to  meet  unexpected  demands.  The  method  sug- 
gested for  the  retirement  of  the  bond-secured 
currency  is  attractive  in  that,  while  it  would  pre- 
vent an  increase  in  the  volume  of  national-bank 
circulation,  it  would  enable  the  banks  to  use  their 
bonds  as  collateral  for  the  uncovered  part  of 
their  notes  received  from  the  association,  and  to 
avoid  payment  of  the  tax  aforementioned.  Of 
all  clearing-house  plans  it  is  the  most  coherent. 


112 


CENTRAL  BANK  CONTROVERSY. 
I.     THE  AFFIRMATIVE. 

The  proponents  and  opponents  of  an  Amer- 
ican central  bank  are  alike  energetic  and  fertile 
in  advancing  arguments  in  support  of  their  re- 
spective opinions  on  that  question.  The  sum- 
mary herewith  probably  embodies  the  gist  of  the 
claims  made  in  support  of  the  establishment  of 
such  an  institution  in  this  country: 

It  is  the  historical  solution,  evolved  in  every 
civilized  country  except  our  own. 

It  would  supply  the  country  with  an  elastic 
currency  responsive  to  the  varying  needs  of  busi- 
ness. 

It  would  give  confidence  to  depositors — the 
essential  most  conducive  to  sound  and  prosper- 
ous banking. 

It  would  supply  a  responsible  head  to  our 
present  banking  system,  which  is  essential  for 
the  large  number  of  small  banks  therein. 

It  would  tend  to  steady  the  rate  of  interest 
at  all  seasons,  preventing  those  violent  fluctua- 

113 


A   CENTRAL   BANK 

tions  which  have  been  so  embarrassing  to  busi- 
ness and  finance. 

•  It  would  give  rehef  in  periods  of  industrial 
and  financial  stress  because  its  large  resources 
would  enable  it  to  meet  extraordinary  and  sud- 
den demands  for  capital  and  currency. 

It  would  remedy  existing  defects  through  its 
tendency  to  furnish  an  elastic  currency  respon- 
sive to  the  country's  needs,  which  should  avert 
panics  and  periods  of  currency  stringency. 

It  would  assist  in  moving  the  crops  without 
disturbing  the  business  world  or  the  money  mar- 
ket; and  by  controlling  the  interest  rate  it  could 
check  inordinate  speculation. 

It  would  be  a  reserve  fund  of  credit.  Through 
a  central  reserve  which  could  be  brought  to  bear 
at  the  danger  point,  the  central  bank  would  give 
relief  by  substituting  an  unquestioned  credit  for 
a  local  credit,  which  for  the  time  was  doubted. 

It  would  eliminate  the  Sub-Treasury  system 
and  would  prevent  inflation  and  contraction 
liable  to  follow  Federal  disbursements  and  col- 

114 


CENTRAL    BANK   CONTROVERSY 

lections,  for  it  would  always  keep  the  nation's 
money  at  the  disposal  of  trade  and  commerce. 

It  would  protect  the  country's  gold  stock, 
which  is  now  at  the  mercy  of  foreign  markets, 
through  its  intimate  relations  with  the  money 
market;  and  could  prevent  a  prolofiged  drain  on 
its  gold  reserve  which  the  Treasury  is  unable 
to  do. 

It  would  unite  the  banking  institutions  of  the 
country  under  one  responsible  agency  conducted 
solely  in  their  interests.  Thus  established  it 
would  eliminate  the  weakness  resulting  from  the 
present  isolation,  and  convert  our  banking  system 
into  a  co-ordinated  whole. 

It  would  be  enabled  to  issue  properly  pro- 
tected credit  notes  and  through  its  rediscounting 
privileges,  could  extend  assistance  in  any  direc- 
tion, and  in  any  amount,  to  banks  upon  pledge  of 
their  receivables.  A  currency  so  secured  would 
constitute  a  perfect  currency. 

It  would  be  a  practical  illustration  of  our 
motto,  E  Plurihus  Univm:  one  great  institution, 
owned  and  directed  by  several  thousand  lesser 
ones,  always  ready  to  man  the  breach  and,  by 

115 


A   CENTRAL  BANK 

virtue  of  its  leadership  and  resources,  to  repulse 
a  threatened  assault  upon  their  credit. 

It  would  be  a  safeguard  against  panic  and  a 
positive  cure  for  distrust  and  uncertainty,  owing 
to  the  strength  of  its  reserves  and  the  public 
confidence  in  its  management  and  ability  to  cope 
with  any  situation,  however  complicated  or  dan- 
gerous. 

It  would  receive  and  disburse  moneys  of  the 
Government,  and  would  act  as  its  fiscal  agent  in 
redeeming  paper  money.  It  would  prevent  the 
hoarding  of  public  money  in  the  Treasury  by 
acting  as  its  custodian,  and  it  would  terminate 
the  periodic  appeals  of  the  money  market  to  the 
Treasury  for  relief. 

It  would  recognize  the  excellence  of  short- 
time  commercial  paper  as  collateral  for  note 
issues,  and  would  lead,  in  time,  to  the  elimina- 
tion of  our  inflexible,  bond-secured  circulation. 
Therein  is  the  only  step  toward  true  currency 
reform;  and  whether  we  take  it  now  or  a  hun- 
dred years  from  now,  we  must  take  it  eventually. 

It  would  probably  lessen  the  profits  of 
banks  holding  large  reserve  deposits,  but  in  the 

116 


CENTRAL    BANK   CONTROVERSY 

security  and  stability  of  business  of  all  kinds, 
resulting  from  the  operations  of  a  central  bank, 
and  in  the  greater  reliability  and  mobility  of 
reserves  administered  by  it,  the  banks  would 
have  a  protection  that  would  be  more  than  a 
set-ofif  to  any  diminution  in  profits. 

It  would  not  only  regulate  the  interest  rate 
for  loans,  but  it  would  tend  to  estimate  the  real 
worth  of  money,  and  would  raise  or  lower  its 
interest  on  deposits  accordingly.  Under  the 
present  system  payments  of  interest  on  deposits 
never  vary,  no  matter  what  the  worth  of  money 
may  be.  This  should  be  adjusted  and  a  central 
bank  would  be  helpful  to  such  an  end. 

It  would  be  in  accord  with  the  best  economic 
thought  and  practice  of  other  countries.  Actual 
experience  has  shown  that  a  central  bank  is  the 
only  system  which  can  meet  the  varying  wants 
of  commerce  and  provide  for  those  sudden  exi- 
gencies which  will  arise  from  time  to  time,  and 
which  place  an  unnatural  and  abnormal  strain 
on  the  finances  of  a  country. 

It  would  permit  a  reduction  in  the  heavy  re- 
serves now  maintained,  releasing  pro  tanto 
uninvested    capital    and    placing    it    at    the    dis- 

117 


A   CENTRAL  BANK 

posal  of  commercial  or  industrial  demand. 
By  concentrating  the  banking  reserves  of  the 
nation  it  would  assure  a  more  economical  ad- 
ministration of  them,  and  utilize  them  more 
efficiently  for  business  purposes. 

It  would  make  for  greater  safety  and  scrutiny 
to  have  the  note-issuing  function  centralized — 
eventually — in  one  great  bank,  immediately  un- 
der the  eye  of  the  Government  and  the  whole 
financial  world,  than  if  scattered  among  a  multi- 
tude of  small  banks  with  no  adequate  redemp- 
tion system  possible.  The  expansion  of  credit 
and  the  issuance  of  currency  can  best  be  done  by 
a  central  responsible  power. 

It  could  always  maintain  its  lending  power 
by  adjusting  its  interest  rates  to  existing  condi- 
tions— when  borrowing  seemed  to  be  too  brisk, 
by  raising  the  rate  to  check  undue  expansion. 
Moreover,  not  being  a  bank  of  deposit,  its  treat- 
ment of  its  customers  would  be  uniform;  for  it 
would  not  be  obligated  to  them  as  is  often  the 
case  with  banks  under  the  present  banking  sys- 
tem. 

It  would  be  prepared  to  do  regularly,  but  in 
such  a  manner  as  would  not  interfere  with  do- 
ns 


CENTRAL    BANK   CONTROVERSY 

mestic  exchange,  what  the  clearing-houses  do  in 
time  of  emergency:  to  issue  credit  currency. 
Credit  notes  of  the  central  bank,  however,  while 
not  superior  to  the  certificates  of  the  clearing- 
houses in  regard  to  security,  would  be  readily 
negotiable  and  certain  of  retirement  automatic- 
ally when  not  longer  needed. 

Demonstrated  in  other  countries  to  be  the 
one  safe  and  scientific  method  to  provide  an 
elastic  currency  in  response  to  commercial  neces- 
sity,  to  regulate  interest  rates,  and  to  protect  the 
gold  stock,  a  central  bank  in  this  country  is  not 
only  imperative,  but  indispensably  necessary  to 
develop  its  resources,  market  its  products,  dis- 
pose of  its  commodities  and  manufactures,  in- 
crease its  foreign  trade,  protect  its  gold  reserves, 
regulate  its  foreign  and  domestic  exchange,  and 
make  it  what  its  wealth  and  possibilities  por- 
tend— the  banking  power  of  the  world. 

It  would  bear  a  relation  to  the  other  banks 
similar  to  that  of  the  Federal  Government  to  the 
States.  Its  sphere  and  that  of  the  several  banks 
would  be  distinct,  but  the  central  bank  would  be 
the  controlling  influence,  the  responsible  leader 
in  times  of  emergency.  Organized  to  safeguard 
them,  it  would  then  afiford  them  sanctuary  and 

119 


A   CENTRAL   BANK 

satisfy  their  wants  for  currency.  This  function 
of  authority  and  leadership  would  convey  to  the 
minds  of  the  people  a  sense  of  ease  and  security 
hitherto  wanting  in  periods  of  stress,  and  would 
make  the  central  bank  a  bulwark  of  public  con- 
fidence. 

It  would  prevent  much  of  the  country's  cur- 
rency from  flowing  into  Wall  Street,  as  at  pres- 
ent. Wall  Street  does  not  require  a  central 
bank:  it  obtains  all  the  money  necessary  with- 
out one.  But  the  people  want  a  central  bank  to 
divert  some  of  the  money  drawn  to  that  specu- 
lative centre  by  means  of  "interest  payments  on 
daily  balances.^'  Investment,  through  a  central 
bank,  in  commercial  paper  would  lessen  the  vol- 
ume of  money  used  for  speculation  and,  perhaps, 
lead  to  reform  therein;  while  the  bank  would 
afford  unusual  opportunities  for  investment  in 
the  commercial  paper  of  this  country  to  both 
domestic  and  foreign  bankers. 

It  would  be  a  substantial  protection  to  the 
country  against  foreign  influences.  Foreign  up- 
heavals at  present  invariably  lead  to  sales  of 
foreign  holdings  of  American  securities  on  the 
New  York  stock  market  and  result  in  gold  ex- 
portations.    Frequently,  this  leads  to  a  reduction 

120 


CENTRAL    BANK   CONTROVERSY 

of  loans  in  an  amount,  approximately,  four  times 
the  total  of  the  gold  exported.  Our  credit  fabric 
is  accordingly  deranged  and  business  accommo- 
dations are  restricted.  With  a  central  bank  in 
command  of  the  field,  owing  to  its  enormous  re- 
serve power,  the  volume  of  money  in  use  would 
be  sufficient  to  meet  all  demands,  without  any 
impairment  of  credit  or  embarrassment  to  busi- 
ness. 

Organized  as  a  bank  for  banks  only  and  pro- 
hibited from  dealing  with  the  public  it  could  not 
become  a  competitor  of  existing  banks.  The  ar- 
gument that  it  would  affect  the  latter  as  did  the 
second  Bank  of  the  United  States  obviously 
arises  from  a  misconception.  That  institution 
was  an  overshadowing  competitor  of  the  State 
banks,  and  with  its  larger  resources  and  special 
privileges  from  the  Government  was  bound  to 
incur  their  hostility  and  resentment.  It  was  pri- 
vately owned  and  was  conducted  for  profit  pri- 
marily, whereas  the  prevailing  thought  on  a  cen- 
tral bank  for  this  country  to-day  recommends 
the  ownership  of  its  stock  by  the, banks  them- 
selves, or  by  the  banks  and  the  Government 
jointly.  Moreover,  it  is  not  intended  to  be  oper- 
ated for  profit,  but  as  an  effective  agency  to  pro- 
mote the  general  welfare  of  the  banks  and  of  the 

121 


A   CENTRAL   BANK 

country.  Such  an  institution  could  be  no  more 
antagonistic  to  our  existing  banks  than  is  the 
Federal  Government  to  the  governments  of  the 
several  States. 

Finally,  taking  everything  into  consideration, 
it  is  found  that  a  central  bank  answers  the  de- 
mands of  our  country  more  completely  than  any 
other  plan  proposed.  It  is  comprehensive  and 
final,  while  other  plans  are  incomplete  and  tem- 
porary. It  is  in  harmony  with  the  development 
of  the  times  toward  higher  organization,  and  it 
has  the  advantage  of  being  a  working  success 
elsewhere. 


122 


CENTRAL    BANK   CONTROVERSY 


II.     NEGATIVE. 

The  opponents  of  a  central  bank  present  their 
arguments  more  in  the  nature  of  a  plea  by  way 
of  confession  and  avoidance  than  by  a  direct 
traverse.  The  merits  of  a  central  bank  are  not 
denied  but  its  feasability  for  this  country  is 
openly  questioned.  The  most  familiar  argu- 
ments on  the  negative  side  of  the  issue  are: 

It  v^ould  give  the  East  control  of  our  banking 
and  financial  institutions. 

Popular  prejudice  forbids  any  attempt  to 
establish  such  an  institution. 

Its  paternalistic  tendencies  would  be  opposed 
to  the  spirit  of  established  custom  and  habit. 

It  could  not  be  divorced  from  speculation  and, 
in  time,  would  be  dominated  by  Wall  Street. 

It  would  be  such  a  "big  thing"  the  malefactors 
of  great  wealth  could  hide  behind  it. 

It  is  a  Cannon-Aldrich  measure  and  as  such 
is  open  to  attack,  viewing  past  history. 

123 


A   CENTRAL   BANK 

The  experience  of  the  second  Bank  of  the 
United  States  forbids  the  institution  of  a  third. 

Its  poHtical  entanglements — which  it  could 
not  avoid — might  threaten  the  nation's  solvency. 

It  is  w^iser  to  perfect  the  present  system  than 
to  replace  it  with  something  entirely  new. 

A  central  bank  would  tend  too  much  to  cen- 
tralization and  would  be  repugnant  to  our  repub- 
lican institutions. 

From  a  traditional  point  of  view  it  would  be 
politically  impossible  and,  in  general,  altogether 
undesirable. 

It  would  tend  to  become  a  monopoly  and  then 
we  should  have  a  "financial"  trust.  We  have 
enough  of  the  industrial  variety,  at  present. 

It  would  become  a  political  prize,  and  in  the 
end  would  destroy  both  itself  and  the  party 
which  created  it. 

It  would  tend  to  depreciate  the  value  (price) 
of  United  States  bonds,  and  thereby  would  affect 
the  credit  of  our  Government. 

,    124 


CENTRAL   BANK   CONTROVERSY 

It  could  not  serve  local  wants  as  does  the 
country  bank,  for  it  would  not  have  the  informa- 
tion, knowledge  or  interest  of  the  latter. 

It  would  be  a  physical  impossibility  for  a 
central  bank  to  serve  a  country  so  large  as,  or 
interests  so  varied  as  those  in,  the  United  States. 
How,  then,  could  it  serve  all  the  people? 

In  time  it  would  be  controlled  by  a  few  for 
their  own  ends,  which  would  be  improper  ends, 
and  the  "interests"  not  the  people  would  then  be 
served. 

It  would  always  be  opposed  by  the  political 
opponent  of  the  party  which  might  charter  it, 
and  would  never  secure  a  renewal  of  its  charter 
from  the  first-mentioned  party. 

It  would  revolutionize  our  banking  system 
and  compete  with  existing  banks,  depriving  them 
of  the  business  they  had  built  up  and  depreciating 
their  investment  value. 

Our  independent  banking  system  can  be  fash- 
ioned or  amended  to  give  us  an  elastic  currency 
system  in  harmony  with  existing  institutions  and 
customs. 

125 


A    CENTRAL   BANK 

It  would  withdraw  funds  from  banks  in 
newly-settled  localities  where  they  were  required, 
and  thus  would  arrest  industry  and  prohibit  de- 
velopment. 

Opposition  to  a  central  bank  because  of  the 
earlier  failures  of  that  institution  is  not  prejudice 
but  judgment  based  on  experience;  and  the  wise 
invariably  profit  by  experience. 

It  would  reduce  the  profits  of  banks  holding 
large  reserve  deposits  by  the  withdrawal  of  the 
latter,  and  would  lessen  their  power  to  accommo- 
date their  customers. 

In  injuring  the  country  banks  [which  is  freely 
claimed]  it  would  destroy  banking  initiative  and 
individuality,  check  local  enterprise,  and  arrest 
the  strongest  forces  in  the  upbuilding  of  the 
nation. 

A  central  bank  would  be  so  dependent  upon 
the  Government  it  would  in  time  become  its 
servant.  Independence  of  the  banking  power  is 
essential,  and  can  be  preserved  only  by  the  pres- 
ent system  of  free  banks. 

The  resentment  of  borrowers  of  good  stand- 
ing and  intent  at  supervision  and  inquiry  by  men 

126 


CENTRAL    BANK   CONTROVERSY 

a  thousand  miles  distant,  who  were  unacquainted 
with  local  conditions,  helped  to  wreck  the  second 
Bank  of  the  United  States.  A  central  bank 
would  rekindle  the  same  feeling. 

A  central  bank  is  possible  in  Europe  because 
governmental  changes  under  a  monarchy  are  few 
and  only  occasional.  In  this  country  they  are 
possible  every  four  years,  and  this  could  not 
assure  the  bank  the  character  of  permanence 
known  in  Europe. 

It  should  be  opposed  until  a  comprehensive, 
clean-cut  embodiment  of  its  vital  features  can  be 
passed  upon  by  the  trained  minds  of  the  country. 
So  far  its  presentation  has  dealt  only  in  generali- 
ties that  smacked  strongly  of  a  particular  end 
for  special  interests. 

It  would  be  a  source  of  temptation  to  other 
banks  to  take  chances  in  allowing  their  reserves 
to  fall  below  the  legal  requirements,  because  of 
the  supposed  bulwark  the  central  bank  would 
prove  in  time  of  distress,  and  that  would  lead  to 
trouble. 

In  case  of  a  great  war  the  Government  would 
be  less  likely  to  cause  the  suspension  of  specie 

127 


A   CENTRAL   BANK 

and  the  unlimited  issue  of  fiat  money,  under  a 
general  law  authorizing  note  issues  by  a  multi- 
tude of  banks,  than  if  this  were  the  sole  privilege 
of  a  central  bank. 

It  would  become  the  master,  not  the  servant 
of  business,  and  with  its  great  resources  could 
dominate  the  various  markets,  becoming  the 
greatest  speculative  machine  ever  conceived. 
Prices  of  stocks  and  commodities  could  be  con- 
trolled by  those  dominating  the  bank,  until  it 
would  become  a  menace  to  the  people,  the  money 
market  and  the  business  and  financial  worlds. 

In  regard  to  the  inelasticity  of  our  currency 
that  matter  is  greatly  exaggerated.  Banks  care 
for  their  regular  customers  and  always  assist  in 
moving  the  crops.  The  money  above  what  is 
required  for  these  wants  they  lend  to  the  stock 
brokers  on  call  at  the  highest  rate  attainable.  It 
is  from  the  latter  the  demand  for  a  central  bank 
comes,  based  on  an  unstable  premise — the  inelas- 
ticity of  our  currency. 

If  the  Government  did  not  attempt  to  sus- 
pend specie  payments,  under  such  circumstances, 
it  would  endeavor  to  absorb  all  the  loanable  funds 
in   a   central   bank   to   the   country's   detriment. 

128 


CENTRAL    BANK   CONTROVERSY 

Several  thousand  banks  would  show  more  inde- 
pendence than  one  central  bank  because  they 
would  protect  their  resources  for  their  customers. 
A  central  bank  would  be  at  the  mercy  of  the 
Government. 

Free  competition  among  independent  banks 
is  the  greatest  guarantee  against  abuse,  A  mo- 
nopolistic central  bank  would  cover  a  multitude 
of  sins.  Pitt,  in  England,  and  Napoleon,  in 
France,  used  the  gold  reserve  for  the  redemption 
of  bank  notes  in  the  Bank  of  England  and  Bank 
of  France,  respectively,  for  war  purposes;  and  in 
France  the  transaction  was  "covered  up"  as  a 
''commercial  discount." 

It  might  become  a  great  financial  headquar- 
ters directed  by  the  corporate  and  organized 
wealth  of  the  country,  and  be  used  as  an  instru- 
ment to  accumulate  still  greater  fortunes.  A 
circulation  adapted  to  speculation  and  stock- 
market  manipulations  would  not  be  the  money 
the  people  would  want,  but  it  likely  would  be  the 
sort  of  currency  a  great  central  bank,  manned  by 
high  financiers,  would  supply. 

Its  proposed  branches  would  be  especially  ob- 
noxious  to  existing  interior  banks,   and  would 

129 


A   CENTRAL  BANK 

injure  them  seriously.  These  banks  have  grown 
up  with  their  communities  and  have  developed 
them.  To  establish  in  different  sections  branches 
of  a  central  bank  with  large  resources,  would  be 
an  invasion  of  the  vested  rights  of  existing 
banks  which,  because  of  limited  resources,  could 
not  hope  to  compete  with  them. 

The  difficulty  of  procuring  competent  and 
disinterested  men  to  manage  the  bank  would  be 
practically  insurmountable.  Hence,  the  bank 
could  become  the  pawn  of  men  of  great  political 
influence  or  of  men  of  great  wealth,  and  could 
be  used  to  advance  their  schemes  to  the  detri- 
ment of  the  people.  Its  enormous  resources, 
under  these  circumstances,  could  be  used  to  cor- 
rupt the  electorate,  the  bench,  the  legislature 
and  the  executive. 

It  would  wield  for  a  time  the  effective  pow- 
ers of  our  several  thousand  independent  banks, 
and  during  that  period  would  be  practically 
irresistible.  But  the  very  continuance  of  that 
power,  by  weakening  or  destroying  the  value  of 
the  units,  would  bring  down  the  totality  of 
strength  even  to  the  point  of  extinction.  Pro- 
curing efficiency  not  through  evolution  and  de- 
velopment  but    through   imequal    centralization 

130 


CENTRAL    BANK   CONTROVERSY 

has  been  proven  by  all  known  experience  to  be 
fallacious. 

Our  whole  Government  is  in  its  essence  a 
protest  against  centralization.  Therefore,  no 
theoretical  plans  could  protect  any  quasi-political 
institution  of  real  financial  power  from  legisla- 
tive or  demagogic  attack.  Consequently,  a  cen- 
tral bank  having  on  deposit  a  large  proportion 
of  the  banking  reserves  of  the  country  might 
involve,  through  the  possibility  of  the  attack 
aforementioned,  the  entire  banking  strength  of 
the  country;  for  an  assault  on  the  credit  of  the 
central  bank  would  be  a  menace  to  the  banks 
depositing  with  it. 

Granting  that  a  competent,  honest,  efficient 
board  of  managers  could  be  found  for  the  bank 
at  the  outset,  there  would  be  danger  in  concen- 
trating the  power  proposed  to  be  given  in  any 
body  of  men ;  for  there  can  be  no  assurance  that 
the  same  class  of  directors  will  always  be  dis- 
coverable. And  if  the  rights  of  the  public  should 
be  abused  by  the  directors  through  their  impro- 
priety or  unlawful  behavior,  it  must  be  remem- 
bered, the  power  so  abused  goes  with  the  office 
and  not  with  the  individual,  and  would  still  re- 
main to  be  violated  or  abused  again.    Since  such 

131 


A   CENTRAL   BANK 

power  once  conferred  is  rarely  recovered  to  the 
people,  is  it  not  better  to  "let  well  enough  alone" 
and  try  another  attempt  to  mend  the  existing 
system? 

Even  though  the  control  of  the  bank  re- 
mained in  the  hands  of  the  wisest,  the  most  hon- 
orable, and  the  most  disinterested  men,  it  would 
not  be  possible  to  satisfy  the  people  throughout 
the  country  that  the  vast  resources  and  power 
of  the  bank  were  used  for  the  best  interests  of  all 
the  people  and  without  partiality  or  favor  to  any 
section,  class  or  set.  Sectional  dissensions  would 
arise  quickly.  The  South  would  demand  loans 
to  help  the  planters  accumulate  and  carry  their 
crops  of  cotton  and  tobacco  in  order  to  force 
higher  prices.  The  West  would  want  assistance 
to  raise  the  price  of  corn  and  wheat.  The  large 
money  centers  would  want  the  bank  to  help 
bankers  and  brokers  in  their  speculative  under- 
takings. In  case  of  a  stringency,  followed  by  a 
general  outcry  for  help,  if  the  central  bank  failed 
to  give  entire  satisfaction,  selfishness  or  collu- 
sion with  Wall  Street  would  be  immediately 
charged  against  it. 


132 


TWO  CURRENCY  POLLS  AMONG 
BANKERS. 

In  December,  1907,  the  writer  personally  con- 
ducted a  currency  poll  of  the  presidents  and 
cashiers  of  leading  banks  throughout  the  coun- 
try, for  his  paper,  TJie  Wall  Street  Siuiunary , 
New  York  City  was  not  included  in  the  canvass. 
A  ballot  was  prepared  containing  an  outline  of 
the  best  known  and  most  widely  advocated  cur- 
rency reform  recommendations  at  that  date. 
These  were  the  plans  of  the  American  Bankers' 
Association,  New  York  Chamber  of  Commerce 
(Central  Bank  and  Asset  Currency  suggestions), 
former  Secretary  of  the  Treasury  Leslie  M. 
Shaw,  United  States  Treasurer  Charles  H.  Treat, 
and  Representative  Charles  N.  Fowler,  then 
chairman  of  the  Committee  on  Banking  and  Cur- 
rency, House  of  Representatives.  Epitomized, 
these  plans  on  the  ballot  read: 

The  American  Bankers'  Plan:  Providing  for 
an  "emergency^'  credit  currency  by  permitting 
any  national  bank,  actually  engaged  for  one  year, 
and  with  a  surplus  of  20%  of  its  capital,  to  issue 
additional  notes  without  security  equal  to  40% 
of  its  bond-secured  circulation,  subject  to  a  tax 

133 


A   CENTRAL  BANK 

of  2y2%  per  annum  on  the  average  amount  out- 
standing; and  a  further  amount,  equal  to  12}^% 
of  its  capital,  subject  to  a  tax  of  5%,  etc. 

The  Central  Bank  of  Issue  Plan:  Recom- 
mended by  the  New  York  Chamber  of  Com- 
merce, providing  for  the  organization  of  a  cen- 
tral bank  of  issue,  with  a  capital  of  not  less  than 
$50,000,000,  to  carry  a  large  reserve  of  gold,  and 
act  as  custodian  of  the  Government's  metallic 
reserves,  as  its  agent  in  redeeming  all  kinds  of 
money,  as  its  receiving  and  distributing  agent, 
doing  at  its  branches  the  work  now  done  at  the 
Sub-Treasuries,  and  to  deal  exclusively  with 
banks.  The  plan  provides  for  stock  ownership 
of  this  bank  in  part  by  other  banks  and  in  part 
by  the  Government,  but  vests  its  management 
exclusively  in  the  Government. 

The  New  York  Chamber  of  Commerce  Asset 
Currency  Plan:  Providing  for  the  issuance  of 
additional  notes  equal  to  35%  of  its  capital  by 
any  national  bank,  whose  bond-secured  circula- 
tion equals  50%  of  its  capital  stock,  subject  to  a 
graduated  tax  of  from  2%  to  6%,  according  to 
the  amount  of  additional  notes  taken  out. 

The  "Treat"  Plan:  Providing  for  a  bond- 
secured   emergency   note   system,   in   contradis- 

134 


TWO  CURRENCY  POLLS  AMONG  BANKERS 

Unction  to  a  credit  currency  system.  Under  this 
plan  national  banks  would  be  empowered  to  issue 
50%  of  their  circulating  notes  on  security  other 
than  Government  bonds,  and  the  same  would  be 
retired  in  four,  six  and  eight  months  from  Sep- 
tember 1,  of  each  year.  (This  is  an  adaptation 
of  Secretary  Chase's  idea  embodied  in  the  follow- 
ing report  to  Congress:  "Such  currency  could 
be  issued  as  a  loan  to  bankers,  on  deposit  of  coin, 
a  pledge  of  securities,  or  in  some  other  way.") 

The  "Fowler"  Plan:  Providing  for  a  credit 
currency  system  through  permitting  national 
banks  to  convert  bank-book  credits,  or  deposits 
subject  to  check,  into  bank-note  credits,  or  credit 
currency. 

The  "Shaw"  Plan:  Providing  for  "emer- 
gency" circulation  by  national  banks  up  to  50% 
of  their  capital  without  a  deposit  to  secure  its 
redemption,  but  subject  to  a  tax  of  5%. 

In  the  plans  so  outlined  the  voters  had  variety 
in  plenty  The  American  Bankers',  Fowler,  and 
Chamber  of  Commerce  recommendations  sought 
to  preserve  our  present  bond-secured  bank  notes 
and  to  extend  circulation  through  the  medium 
of  bank  credit  currency,  in  order  to  provide  the 

135 


A   CENTRAL   BANK 

needed  elasticity.  Collateral  security  was  not 
required  for  note  issues  thereunder,  but  taxation 
was  relied  on  to  force  their  retirement  when  not 
longer  needed;  and  in  case  of  the  failure  of  a 
bank,  provision  was  made  for  the  redemption  of 
its  notes  by  the  United  States  Treasury,  which, 
in  turn,  would  recoup  itself  from  the  redemption 
fund  created  by  the  tax  imposed  on  such  circula- 
tion, and,  also,  from  the  assets  of  the  failed  bank. 
The  Shaw  proposal  favored  the  issuance  of  un- 
secured emergency  circulation  heavily  taxed; 
and  the  Treat  plan  (an  adaptation  of  an  idea  of 
former  Secretary  of  the  Treasury  Chase)  opposed 
credit  or  emergency  currency  and  recommended 
a  bond-secured  emergency  note  system.  This 
plan  was  ultra-conservative.  Diametrically  op- 
posite to  all  was  the  Central  Bank  idea.  That 
proposed  the  establishment  of  a  central  institu- 
tion, with  a  capital  of  $50,000,000,  owned  in  part 
by  the  banks  of  the  country  and  by  the  Govern- 
ment. By  its  issuance  of  properly  protected 
bank-credit  notes,  elasticity  would  be  assured, 
and  through  its  rediscounting  facilities  the  in- 
terest rates  would  remain  reasonably  level. 

The  results  of  the  poll  were  most  surprising 
and  unexpected.  Replies  were  received  from 
more  than  400  voters  in  thirty-three  States.  The 
Central  Bank  of  Issue  plan  led  the  poll,  receiving 

136 


TWO  CURRENCY  POLLS  AMONG  BANKERS 

33  per  cent,  of  all  the  votes  cast,  and  the  plan  of 
the  American  Bankers'  Association  was  second, 
having  been  favored  by  29  per  cent,  of  those  bal- 
loting. The  Shaw,  Treat,  Chamber  of  Com- 
merce, and  Fowler  plans  followed  in  the  order 
named;  but,  combined,  their  votes  did  not  equal 
the  total  for  either  of  the  dominant  recommenda- 
tions. It  is  worthy  of  mention  that  fourteen 
voters  rejected  all  plans  and  sixteen  submitted 
original  solutions  for  currency  reformation. 

The  voters  were  representative  men,  and  the 
vote  as  a  whole  may  be  assumed  to  be  a  fair 
reflex  of  banking  opinion  on  currency  reform. 
It  waS',  unquestionably,  the  only  vote  ever  taken 
on  all  t!ie  current  plans  outlined,  and  probably 
the  heaviest  ever  recorded  in  favor  of  a  currency 
measure,  outside  of  Congress.  It  has  been  assev- 
erated, by  some  who  participated  in  the  Atlantic 
City  convention  of  the  American  Bankers'  Asso- 
ciation, that  the  resolutions  on  currency  reform 
were  put  to  a  vote  when  there  were  not  more 
than  100  delegates  present  and  voting.  The 
Siunmary's  poll  quadrupled  that  result;  and,  it 
can  be  claimed,  moreover,  that  never  in  a  conven- 
tion was  the  same  opportunity  for  deliberation 
and  individual  expression  of  opinion  given  a 
banker  as  in  the  privacy  of  his  office,  when  con- 
sidering the  newspaper  ballot,  aforesaid.     From 

137 


A   CENTRAL   BANK 

the  results  of  this  poll  two  facts  were  clearly 
established:  Sentiment  in  favor  of  a  central  bank 
was  increasing  marvelously;  and  banking  opin- 
ion on  the  currency  question  was  distressingly 
divergent.  The  fact  that  fourteen  bankers  should 
reject  all  six  plans,  and  that  sixteen  others  should 
submit  new  plans,  shows  the  confusion  and  un- 
certainty, not  to  say  empiricism,  prevalent  in  the 
ranks  of  our  bankers.* 

Daily,  for  a  week,  or  more,  the  Summary 
published  the  results  of  the  canvass,  giving  the 
names  of  the  voters,  with  their  addresses  and  the 
names  of  the  institutions  with  which  they  were 
connected.  In  turn,  these  were  flashed  by  the 
■wires  of  our  press  associations  to  the  remotest 
sections  of  the  United  States,  and  were  cabled 
even  to  England,  where  some  very  flattering  edi- 
torial comments  soon  appeared  in  the  London 
press,  congratulating  the  bankers  on  their  en- 
lightenment and  the  Sinninary  on  its  enterprise. 
The  first  concrete  expression  of  banking  opinion 
in  this  country  ever  published,  it  made  bankers 
think  on  this  question  as  they  had  never  thought 
heretofore:  and  for  more  than  a  year  and  a  half 
after  the  date  of  the  poll,  letters  reached  the 
writer  from  bankers  in  remote  localities  in  refer- 


*  See  article.  "Currency  Reform:  A  Central  Bank,"  by  writer, 
in  the  American  Review  of  Reviews  for  January,  1908. 

138 


TWO  CURRENCY  POLLS  AMONG  BANKERS 

ence  to  the  central  bank  issue,  which,  in  all  prob- 
ability, would  never  have  been  written  but  for 
the  poll  in  question. 

Geographically  considered,  an  analysis  of  the 
vote  is  interesting.  The  Central  Bank  plan  drew 
support  in  twenty-five  States:  Arkansas,  Cali- 
fornia, Colorado,  Connecticut,  Delaware,  Florida, 
Georgia,  Idaho,  Illinois,  Indiana,  Iowa,  Kansas, 
Kentucky,  Louisiana,  Maryland,  Massachusetts, 
Michigan,  Mississippi,  Missouri,  New  York,  New 
Hampshire,  Pennsylvania,  Virginia,  Washington, 
and  Wisconsin.  The  American  Bankers'  plan, 
which  was  ignored  in  Delaware,  Florida,  New 
Hampshire  and  Wisconsin  of  the  enumeration 
aforementioned,  but  gaining,  as  an  offset,  recog- 
nition in  Maine,  Vermont,  Tennessee,  Texas,  and 
Wyoming,  was  supported  in  twenty-six  States. 
The  West,  Middle  West  and  South  gave  the  Cen- 
tral Bank  plan  substantial  support,  notably  Cali- 
fornia, Colorado,  Illinois,  Indiana,  Iowa  Louisi- 
ana, Virginia,  Washington  and  Wisconsin.  These 
nine  States  gave  it  more  votes  than  all  other 
States  voting  for  it  combined.  Illinois  was  its 
stronghold,  and  next,  in  order,  Louisiana,  Cali- 
fornia, Indiana,  Colorado,  Connecticut,  Massa- 
chusetts, Iowa,  and  Wisconsin.  The  American 
Bankers'  plan  was  favored  strongly  in  Indiana, 
Georgia,   Massachusetts   and  Tennessee,  receiv- 

139 


A   CENTRAL   BANK 

ing  five-twelfths  of  its  vote  in  these  States,  and 
making  up  the  remainder  in  twenty-two  others. 
Idaho,  Kansas,  Mississippi,  New  York,  and  Penn- 
sylvania could  not  express  a  preference  for  either 
of  these  plans,  each  State  casting  the  same  num- 
ber of  votes  for  one  plan  as  for  the  other. 

Mr.  Charles  A.  Wright,  president  of  the  Su- 
perior National  Bank  of  Hancock,  Michigan,  at- 
tended the  annual  convention  of  the  American 
Bankers'  Association  in  1904  in  New  York  City. 
Thereat  he  became  impressed  with  "the  lack  of 
effective  association"  among  the  banks  of  the 
country,  and  shortly  after  the  close  of  that  meet- 
ing contributed  to  a  financial  periodical  an 
article  advocating  the  establishment  of  an  Amer- 
ican central  bank,  to  be  owned  and  managed 
by  the  banks  of  the  United  States,  and  to  be 
located  in  the  City  of  New  York.  This  was  very 
well  received  by  the  nation^s  bankers,  and  he 
determined  to  sound  them  further  on  the  ques- 
tion of  their  readiness  to  co-operate  in  organiz- 
ing such  an  institution.  On  May  15,  1906,  he 
mailed  to  17,000  banks  a  circular  letter,  sug- 
gesting a  basis  for  co-operation  on  the  part  of 
the  banks,  inviting  them  to  join  in  the  formation 
of  a  central  bank. 

In  this  circular  Mr.  Wright  pointed  out  that 
such  a  bank  could  be  organized  under  the  ex- 

140 


TWO  CURRENCY  POLLS  AMONG  BANKERS 

isting  National  Bank  Act,  and  that  the  voluntary 
association  of  a  sufficient  number  of  banks,  to 
make  the  movement  worth  while,  would  be  suffi- 
cient to  establish  a  central  bank  which  would 
overcome  the  weakness  of  isolation,  and  guar- 
antee to  the  promoting  banks  the  benefits  of 
effective  co-operation  and  concerted  action.  In 
times  of  stress  or  panic,  for  their  mutual  ad- 
vantage, said  he,  there  would  be  at  hand  a  cen- 
tralized banking  power,  which  would  minister 
to  their  wants  and  safeguard  the  national  wel- 
fare. The  surplus  funds  could  be  brought  to 
bear  wherever  stringency  appeared;  while 
through  the  rediscounting  facilities  of  such  a 
bank,  with  great  resources,  interest  rates  would 
be  largely  regulated.  The  only  drawback  to 
such  an  institution,  he  pointed  out,  would  be  its 
inability  to  issue  notes;  but  that  might  be  over- 
come eventually  by  Congressional  authority.  In 
the  meantime,  he  urged  the  banks  to  establish  a 
central  institution,  giving  it  a  portion  of  their  re- 
serves and  deposits,  to  serve  as  a  common  refuge 
in  time  of  need.  He  recognized  the  inherent 
power  of  such  a  concentration,  and  the  protection 
resulting  from  great  resources,  economically 
administered,  and  responsible  leadership. 

Nothing  came  of  his  effort,  however,  but  un- 
daunted he  returned  to  the  task  on  February  1, 

141 


A   CENTRAL   BANK 

1908,  and,  with  the  evidences  of  the  October 
panic  of  the  year  preceding  emphasizing  the 
weaknesses  of  our  currency  system,  and  cor- 
roborating the  dangers  of  isolation  among  the 
banks  which  he  had  pointed  out,  he  renewed  his 
invitation  to  several  thousand  banks.  This  time 
his  appeal  met  with  better  results.  One  thou- 
sand three  hundred  and  forty-seven  answers 
were  received,  and  of  these,  six  hundred  and  four 
banks  were  in  favor  of  a  central  bank;  three 
hundred  and  ninety  were  willing  to  join  at  once 
in  the  organization  of  a  central  bank,  and  two 
hundred  and  fourteen  desired  previous  legisla- 
tion. Five  hundred  and  sixty-eight  were  op- 
posed to  such  an  institution  in  any  form,  and 
one  hundred  and  seventy-five  were  undecided. 

As  indicating  the  trend  of  banking  opinion 
upon  this  important  question  the  newspaper  poll 
and  the  epistolary  invitation  aforementioned, 
while  by  no  means  conclusive,  are  nevertheless 
not  without  distinct  value.  In  the  former  case 
the  central  bank  led  against  the  five  most  widely 
discussed,  and  most  authoritative  plans  for  cur- 
rency reform  known  to  either  bankers  or  public. 
It  had  to  combat  political  prejudice  on  the  one 
hand,  and  the  prestige  of  the  American  Bankers' 
Association  on  the  other,  which  in  itself,  was 
enough  one  should  think  to  sweep  the  country. 

142 


TWO  CURRENCY  POLLS  AMONG  BANKERS 

Not  so,  however.  The  plan  which  had  neither 
statesman  nor  pubhc  nor  press  behind  it;  which 
was  known  to  comparatively  few  and  not  under- 
stood by  all  of  this  number;  which  had  to  stand 
or  fall  on  its  own  merits,  triumphed  over  the 
other  plans  when  subjected  to  the  test.  And 
when  a  particular  number  expressed  an  opinion 
for  or  against  it  alone,  as  in  the  case  of  Mr. 
Wright,  it  received  a  majority — if  we  exclude  the 
number  mentioned  by  him  who  were  "unde- 
cided." From  these  results  it  is  plain  that  our 
bankers  are  giving  much  thought  to  the  central 
bank  question,  and  that  the  traditional  prejudice 
of  the  Jacksonian  era  is  disappearing. 


143 


CURRENCY  REDEMPTION. 

Opponents  of  a  central  bank  offer,  as  a  sub- 
stitute, an  asset  currency  plan  for  the  existing 
national  banks.  This  necessarily  raises  the  ques- 
tion of  redemption,  for  the  soundness  of  any 
credit  currency  recommendation  depends  upon  its 
provision  for  current  redemption.  Experience  in 
banking  everywhere  shows  that  success  in  the 
case  of  individual  bank  issues  springs  from  the 
regularity  with  which  the  notes  return  for  re- 
demption. The  history  of  wild-cat  banking,  on 
the  other  hand,  shows  a  resort  to  every  available 
expedient  by  note-issuing  banks  to  keep  their 
notes  out  as  long  as  possible  and  to  postpone  the 
demand  for  their  redemption.  It  is  unnecessary 
to  state  that  this  led  to  inflation  and  to  loose  and 
irresponsible  banking. 

The  issuance  of  notes  by  individual  banks 
under  a  plan  whereby  the  notes  are  to  be  cleared 
through  a  system  of  clearing-houses  in  different 
sections  of  the  country,  and  under  which  each 
bank  is  to  send  in  the  notes  of  all  other  banks  for 
redemption — as  suggested  in  certain  well-known 
proposals — is  correct  and  scientific  in  principle; 
but  there  are  grave  doubts  as  to  the  practic- 
ability  of   such   a   method.      In    the   first  place, 

145 


A  CENTRAL   BANK 

approximately,  two-thirds  of  our  banks  are  State 
institutions  and  under  the  laws  of  their  organiza- 
tion are  permitted  to  hold  bank  notes  in  their 
reserves.  Accordingly,  in  cases  where  there  was 
an  alliance  between  a  national  and  a  State  bank, 
through  the  controlling  influence  of  the  same 
ownership,  the  State  bank  might  use  the  notes 
of  the  national  bank  as  a  reserve  basis  for  a  large 
volume  of  deposits  and  loans.  This  would  tend  to 
divert  the  bank  note  from  its  intended  purpose 
as  an  instrument  of  credit  and  make  it  a  basis  for 
further  inflation.  Nor  is  it  possible,  by  means  of 
a  limitation  upon  a  bank's  note  issues,  to  guaran- 
tee current  redemption.  For  as  soon  as  a  bank 
had  its  own  notes  fully  in  circulation,  the  incen- 
tive to  return  the  notes  of  other  institutions  might 
be  tolerably  weakened.  And  it  is  seriously  open 
to  question  if  a  plan  providing  for  the  issuance 
of  unsecured  notes  by  more  than  7,000  banks  is 
either  wise  or  constructive. 

Experienced  bankers  reject  this  proposal  in- 
continently. Mr.  William  A.  Nash,  president, 
Corn  Exchange  State  Bank,  New  York  City, 
regards  the  clearing-house  certificate  as  the  only 
form  of  asset  currency  which  is  not  fraught  with 
dangers  greatly  in  excess  of  the  benefits  derived. 
As  to  the  issuance  of  currency  and  expansion  of 
credit    by    a   series    of    small    powers    scattered 

146 


CURRENCY    REDEMPTION 

throughout  the  country,  in  an  address  before  the 
American  Academy  of  PoHtical  and  Social 
Science,  in  Philadelphia  on  the  evening  of  Decem- 
ber 2, 1907,  he  said :  "I  do  not  hesitate  to  say  that 
an  asset  currency  authorized  on  a  forty  per  cent, 
or  any  per  cent,  basis  and  intrusted  to  five  thou- 
sand banks  all  over  the  country  w^ill  surely  result 
in  a  cataclysm  of  disaster,  unparalleled  in  the 
history  of  the  country.  On  the  other  hand,  if  we 
organize  in  a  permanent  form  the  clearing-house 
loan  certificate  now  issued  so  fitfully  and  at  a 
time  when  a  crisis  is  already  upon  us,  we  will 
provide  the  country  in  advance  with  a  remedy, 
just  as  the  New  York  Clearing  House  prevented 
a  panic  in  1895. 

"But  how  shall  we  get  this  permanent  form? 
To  answer  this  we  come  up  against  the  most 
venerable  and  senseless  prejudice  that  obstructs 
the  national  well  being,  the  dread  of  a  §reat 
central  hank.  This  hobgoblin  of  the  politician 
and  the  business  man  has  walked  the  earth  for 
seventy  years.  The  panic  of  1837,  has  not  yet 
been  forgotten  although  the  country  is  radically 
different  from  that  day.  We  must  kill  this  buga- 
boo and  exorcise  this  ghost.  The  average  poli- 
tician is  more  afraid  of  it  than  any  other  question 
except  the  tariff.  The  magnetic  needle  does  not 
point  more  unerringly  to  the  pole,  than  the  clear- 

147 


A   CENTRAL  BANK 

ing-house  certificate  points  to  a  great  central 
bank,  and  dodge  this  as  we  may,  and  as  we  prob- 
ably shall,  finally  we  will  come  back  to  it  and 
hail  it  as  the  solution  of  all  our  difficulties." 

And  equally  explicit  and  emphatic  on  this  point 
is  Mr.  James  B.  Forgan,  president,  First 
National  Bank  of  Chicago.  In  an  address  deliv- 
ered before  the  Bankers'  Club  of  Milwaukee,  Wis- 
consin, a  few  years  ago,  he  said:  "In  closing, 
however  I  desire  to  say,  without  argument,  that 
much  as  I  should  like  to  see  assets  currency  be- 
come a  part  of  the  banking  system  of  this  coun- 
try, I  have  never  been  able  to  make  up  my  mind 
that  it  could  be  safely  or  satisfactorily  connected 
with  our  present  system.  To  me  the  simple  state- 
ment that  about  10,000  banks,  with  capitals  run- 
ning all  the  way  from  $25,000  to  $25,000,000, 
would  have  the  privilege  of  issue,  settles  it  as 
impractical  and  impossible.  Proper  facilities  for 
its  redemption  are  impossible,  and  proper  pro- 
visions for  its  safety  are  equally  impossible.  No 
such  scheme  has  ever  been  successfully  attempted 
in  the  world's  history,  and  no  such  conglomera- 
tion of  credit  obligations  was  ever  floated  in  the 
name  of  a  monetary  circulation.  The  first  essen- 
tial for  a  safe  assets  currency  is  large  capitaliza- 
tion of  the  individual  banks  that  issue  it,  and  the 
second,  of  equal  importance,  is  ample  facilities 

148 


CURRENCY    REDEMPTION 

for  its  prompt  redemption,  not  only  at  the  coun- 
ter of  the  bank  that  issues  it,  but  in  the  financial 
centre  of  every  State  in  the  Union.  Neither  of 
these  could  be  adequately  provided  under  our 
present  system." 

No  one  v^ould  dream  of  calling  our  present  re- 
demption system  adequate.  In  the  case  of  the 
''greenbacks,"  or  legal-tender  certificates,  the 
reader  w^ill  recall  w^hat  the  writer  has  stated  in 
the  opening  chapter,  while  redemption  in  the 
case  of  our  national-bank  currency  only  takes 
place  when  the  paper  is  worn  out.  Practically 
speaking,  there  is  no  redemption  at  all.  When 
the  notes  return  to  the  issuing  bank  they  are  not 
cancelled  or  laid  aside  in  the  bank's  vaults,  but 
are  immediately  restored  to  the  channels  of  cir- 
culation to  earn  a  return  on  the  fixed  capital 
invested  in  the  bonds  securing  them.  This  is 
primarily  true  of  interior  banks.  When  money 
is  abundant  instead  of  retiring  some  of  their  cir- 
culation they  send  large  deposits  to  their  corre- 
spondents in  the  reserve  centres  to  earn  interest 
on  their  balances  and  lighten  to  that  extent  the 
burden  of  carrying  the  bonds  aforementioned. 

Fluctuations  in  bond  prices,  moreover,  fre- 
quently bring  losses  to  the  banks  in  addition  to 
preventing  redemption  and  leading  to  currency 
redundancy.     Here  is  a  case  in  point:     In  1907, 

149 


A   CENTRAL   BANK 

during  the  panic,  banks  bid  as  high  as  108>^  and 
109  for  the  Government  Twos  of  1930,  in  order 
to  relieve  the  money  stringency.  The  low  price 
of  these  bonds  in  1907  was  104 >^.  Early  in  No- 
vember, 1909,  the  bonds  sold  for  100^ — a  decline 
of  more  than  8  points!  Single  banking  institu- 
tions, it  has  been  stated,  invested  sums  between 
$5,000,000  and  $6,000,000  in  these  issues  during 
the  currency  famine  of  1907,  at  the  high  prices 
aforementioned,  and  their  losses,  accordingly, 
approximate  $400,000.  These  stupendous  losses 
can  not  be  offset  by  profits  derived  from  circula- 
tion, while  redemption  is,  of  course,  out  of  the 
question.  For  those  who  harp  on  the  ''safety" 
and  conservatism  of  the  bond-secured  system 
there  is  a  moral  in  this  experience. 

Redundancy  not  redemption  is  the  incident  of 
our  system,  for  there  can  be  neither  real  expan- 
sion nor  contraction  of  circulation  based  upon  the 
deposit  of  Government  bonds.  Circulation  is 
kept  out  to  support  the  bonds  and  to  prevent 
losses  to  the  banks — without  any  relation  to 
prevalent  business  conditions.  Under  a  central 
banking  system  note  redemptions  are  orderly  and 
automatic  and  redundancies  unknown.  Germa- 
ny's five  per  cent,  tax  automatically  retires  her  ex- 
cess note  issues  when  the  discount  rate  in  the 
open  market  falls  below  that  figure ;  Canada's  cir- 

150 


CURRENCY    REDEMPTION 

culation  increases  from  October  to  January  with 
the  harvesting  demands,  and  then  contracts  to  its 
normal  volume;  while  the  Bank  of  France  is  so 
strongly  entrenched  it  elects  to  redeem  in  gold  or 
silver,  and  charges  a  premium  for  the  former. 
In  other  words,  a  central  bank  is  ready  at  all 
times  to  furnish  notes  at  a  profit  to  itself  and  at  a 
reasonable  cost  to  the  borrower.  When  the 
transactions  are  completed  the  excess  notes  are 
destroyed,  and  the  specie  reserve  maintained 
against  them  at  a  triflng  cost  is  then  released. 


151 


CONCLUSION. 

With  the  basic  principles  of  a  central  bank  the 
reader  has  discovered  its  opponents  in  this  coun- 
try have  no  quarrel.  They  question  its  feasibil- 
ity for  entirely  different  reasons  w^hich,  the 
v\Ariter  believes,  can  be  overcome  by  education. 
To  him  it  is  puerile  for  strong  and,  presumably, 
w^ell-informed  men  to  permit  their  judgment  to 
be  clouded  by  the  fate  of  the  second  Bank  of  the 
United  States.  That  the  bank,  despite  its  in- 
glorious and  tragic  end,  was  hailed  as  a  neces- 
sity, and  that  its  services  were  eminently  bene- 
ficial and  constructive,  in  an  earlier  chapter  were 
sufficiently  emphasized.  Almost  three-quarters 
of  a  century  have  passed  since  the  baneful  influ- 
ence of  party  spirit  wrecked  that  institution,  and 
it  is  pertinent  to  ask  the  reader  if  he  can  point 
out  a  single  event  in  the  country's  history  in  that 
period  which  bears,  in  the  slightest  degree,  an  an- 
alogy to  the  Jackson-Clay-Biddle  episode.  If  he 
fail  to  do  so,  then,  he  should  realize  the  utter 
impossibility  of  its  repetition,  to-day.  Tempora 
lyxiitantur  et  nos  in  illis  mutamur.  And  not 
alone  the  people  but  their  institutions  likewise 
have  undergone  a  change. 

153 


A   CENTRAL   BANK 

Banking  seventy-five  years  ago  was  a  vastly 
different  undertaking  from  the  profession  that  it 
is  to-day,  and  it  would  be  as  impossible  as  it 
should  be  inconceivable  to  establish  a  bank  at 
the  present  time  endowed  with  the  privileges  of 
the  institution  Jackson  wrecked.  That  was  a 
privately  conducted  enterprise  and  a  competitor 
of  existing  banks  basking  in  the  sunshine  of  Fed- 
eral patronage  and  favor.  What  sane  man 
would  recommend  such  an  organism  in  the  pres- 
ent? Absurdity  could  go  no  further  than  to 
attempt  such  a  hopeless,  such  a  preposterous 
undertaking,  and  there  lives  no  man  senseless 
enough  to  recommend  it.  Why  then,  the  injec- 
tion of  the  Jackson  imbroglio  into  the  present 
controversy?  say  you.  Simply  because  of  ignor- 
ance and  misinformation.  The  bank  proposed 
is  to  be  a  bank  for  banks  only — a  refuge,  a  sanctu- 
ary, not  a  competitor.  It  is  not  to  be  a  privately 
owned  institution  but  shall  belong  to  the  banks 
and  the  people  jointly,  the  banks  and  the  Gov- 
ernment jointly  or  to  the  banks,  or  to  the  Gov- 
ernment, alone. 

Dull  of  comprehension,  indeed,  is  he  who  can 
argue  from  such  premises,  danger  and  menace  to 
existing  banks.  And  as  to  the  disgraceful  con- 
tention that  we  could  not  find  men  honest  enough 
to  administer  such  a  bank  in  accordance  with  the 

154 


CONCLUSION 

purposes  of  its  institution,  certainly  the  high 
estate  of  American  manhood  and  American  in- 
tegrity must  have  deteriorated  beyond  hope  of 
redemption  if  that  is  to  prevail.  No  country  can 
claim  a  monopoly  of  virtue,  and  America  is  no 
exception;  but  its  history  abundantly  proves  that 
never  did  a  crisis  in  its  affairs  arise  without  pro- 
viding the  man  to  take  the  helm.  And  whether  it 
be  a  Lincoln,  a  Roosevelt,  or  a  Morgan  matters 
not;  the  fact  remains,  the  occasion  bred  the  man, 
and  always  will  bring  him  forth.  To  express  a 
contrary  opinion  is  to  traverse  history  and  to  im- 
pugn the  efficiency  and  honesty  of  the  country's 
bankers,  than  whom,  as  a  class,  there  exists  in  no 
country  a  more  public-spirited,  honorable,  and 
conscientious  body  of  citizens.  There  is  not  a 
banking  centre  of  reasonable  area  in  this  country 
which  could  not  furnish  from  its  own  quota  of 
bankers  enough  competent  and  honest  men  to 
direct  a  central  bank.  And  with  all  the  practice 
the  people  have  had  in  recent  years  in  shaping  re- 
strictive legislation,  surely  they  would  experi- 
ence no  difficulty  in  keeping  the  bank  out  of  the 
vortex  of  speculation  or  politics,  and  out  of  reach 
of  the  "interests."  Should  we  have  to  abandon 
the  project  because  of  public  inability  to  devise 
the  proper  safeguards,  then,  to  the  weakness  of 
the  people  and  not  of  the  recommendation  must 

155 


A  CENTRAL  BANK 

failure  be  ascribed.  No  other  inference  is  pos- 
sible, for  elsewhere  the  central  banking  system 
thrives.  Out  upon  the  man  who  would  so  im- 
pugn American  initiative  and  efficiency! 

There  are  other  and  more  weighty  matters  to 
be  considered,  however,  before  the  writer  is  ready 
to  admit  the  possibility  of  establishing  a  central 
bank  in  this  country.  Reasoning  by  analogy  is 
not  conclusive  in  our  case;  for  what  works  like  a 
charm  in  England,  Germany,  France,  or  Switzer- 
land is  confronted  with  conditions  and  situations 
in  this  country  radically  different.  In  the  first 
place,  the  status  of  existing  banks  must  be  taken 
into  consideration.  Is  that  going  to  be  affected 
materially,  slightly,  or  at  all,  through  the  estab- 
lishment of  a  central  bank?  It  stands  to  reason 
that  the  circulation  privileges  of  the  national 
banks  are  going  to  be  curtailed  and  eventually 
extinguished  by  a  central  bank  of  issue.  In  itself 
that  result  might  prove  a  very  desirable  achieve- 
ment. But  how  shall  this  be  done?  Manifestly, 
not  by  any  drastic  step  which  would  occasion 
loss  to  the  banks  or  inconvenience  to  their  cus- 
tomers. Upon  the  wisdom  with  which  this  solu- 
tion is  attained  must  public  approval  or  dis- 
approval of  the  whole  project  largely  depend. 

It  is  possible  to  reach  a  basis  for  the  annual  re- 
tirement of  a  certain  amount  of  national-bank 

156 


CONCLUSION 

circulation  the  credit  notes  of  the  central  bank  to 
fill  the  vacuum  in  the  meantime  and  finally  re- 
place the  bond-secured  currency  altogether.  If 
directed  gradually  the  effect  on  the  banks  should 
be  negligible;  but  whatever  the  remedy  their  in- 
vestments in  Government  bonds  must  be  pro- 
tected. Doubtless  many  bankers  would  welcome 
a  change  that  promised  relief  from  the  constant 
dread  of  a  decline  in  the  price  of  Government 
bonds,  as  has  been  the  case  for  some  time.  Sim- 
ilarly, a  central  bank  might  retire  the  legal  ten- 
ders by  redeeming  them  in  its  own  notes,  receiv- 
ing, in  return,  the  gold  reserve  against  them  in 
the  Treasury  and  other  Government  resources 
for  the  uncovered  excess.  And  both  of  the  oper- 
ations aforementioned  raise  the  practical  and 
essential  question  of  what  proportion  of  coin  re- 
serve to  note  circulation  the  central  bank  should 
be  required  to  maintain.  If  discussion  on  these 
vital  features  of  the  project  now  in  controversy 
were  more  general,  some  measurable  progress 
might  be  noted,  which  can  never  be  attained  while 
effort  is  wasted  in  arguing  with  blind  and  un- 
reasoning prejudice  over  non-essentials. 

Another  question  which  must  be  determined 
before  any  thought  of  a  central  bank  can  become 
acceptable  is  that  of — branches.  Obviously,  the 
bank  must  have  branches;  the  immensity  of  the 

157 


A    CENTRAL   BANK 

territory  to  be  served  seemingl}-  renders  that  im- 
perative. And  if  one  central  bank  is  not  to  be  a 
competitor  of  the  banks,  it  should  follow  that 
branches,  for  illustration,  in  the  sub-treasury 
cities,  established  as  the  agents  of  the  parent  in- 
stitution and  bound  strictly  by  its  limits,  could 
not  compete  with  banks  in  their  immediate 
vicinity  any  more  than  could  the  central  bank 
itself  in  its  district.  It  is  difficult  to  understand 
why  many  bankers  seem  to  favor  one  central 
bank  but  regard  with  misgivings  the  establish- 
ment of  branches.  Probably,  if  it  were  better 
understood  that  the  branches  are  merely  the  con- 
duits of  the  main  establishment,  and  necessary 
for  the  ends  of  its  institution,  this  feeling  would 
change.  At  all  events,  this  feature  must  be 
clarified.  And  a  matter  of  preeminent  import- 
ance is  that  of  the  central  bank's  profits.  In  all 
the  proposals  for  such  an  institution,  provision 
for  a  large  capital,  a  large  circulation,  and  a  large 
line  of  deposits  from  other  banks  is  a  prominent 
feature.  Yet,  strange  as  it  may  seem,  advocates 
of  the  central  bank  are  singularly  reticent  in  ex- 
plaining in  what  investment  channels  the  heavy 
resources  of  the  bank  may  be  embarked. 

If  it  should  be  intended  to  make  the  central 
bank  a  receptacle  for  a  considerable  proportion  of 
all  the  new  bond  flotations  in  Wall  Street  we  can 

158 


CONCLUSION 

dispense    with    it    instanter,    and    direct    our 
thoughts  and  efforts  to  more  profitable  engage- 
ments.  A  central  bank  with  the  main  part  of  its 
investments  consisting  of  such  securities,  would 
soon  degenerate  into  a  hidebound  institution  of 
no  practical  use  or  benefit  to  the  commerce  of  the 
country.    On  such  a  basis  the  country  could  well 
aft'ord  to  reject  the  central  bank  project  in  toto. 
And  in  this  connection  it  is  likewise  pertinent  to 
observe  that  no  bank  can  be  organized  on  a  basis 
other  than  that  of  profit.     Some  of  the  propo- 
nents of  a  central  bank  lay  stress  upon  the  fact 
that  the  bank  is  not  to  be  organized  for  profit 
primarily.    But  it  stands  to  reason  that  a  central 
bank  to  thrive,  and  to  gain  the  confidence  of  the 
people,  must  realize  something  more  on  its  busi- 
ness than  sufffcient  to  pay  running  expenses  and 
dividends.    Philanthropy  and  banking  are  very 
distinctly  apart  and  seldom  found  in  unison.  The 
former  is  an  abstraction;  the  latter,  in  the  light 
of  a  practical  present,  an  exceedingly  concrete 
pursuit.     Hence,  an  overweening  desire  to  win 
favor  by  laying  stress  upon  the  philanthropic  side 
of  the  central  bank  may  lead  to  delusions  in  the 
popular  mind,  which  it  may  be  impossible  to  dis- 
pel later,  and  if  actually  carried  out,  might  defeat 
or  seriously  hamper  the  functions  of  a  central 
bank.   Of  course,  the  bank  would  earn  a  profit  on 

159 


A   CENTRAL   BANK 

its  rediscounting  transactions  and  on  its  foreign 
exchange  dealings,  but  there  is  no  method  of 
computing  what  figures  these  might  reach.  And 
it  would  receive  returns  from  its  Government 
bond  holdings,  turned  in  as  part  payment  of  cap- 
ital subscriptions  or  acquired  by  purchase.  But 
the  question  of  investment  is  a  basic  one,  and 
thereon  the  public  must  be  advised. 

In  conclusion,  the  writer  has  entire  confidence 
in  the  intelligence,  open-mindedness,  and  sober 
sense  of  the  American  people,  and  believes  that  a 
practical  adaptation  of  a  central  bank  to  our  ex- 
isting system  is  possible  and  likely  to  appeal  to 
them  and  be  adopted  by  them.  Satisfied  of  its 
excellence  everywhere,  they  only  require  assur- 
ances of  its  freedom  from  control  by  scheming 
politicians  and  financiers,  and  its  adaptability  to 
their  traditions,  habits,  and  experience.  The 
least  departure  therein,  consistent  with  the  estab- 
lishment of  a  central  bank,  the  greater  the  possi- 
bility of  success. 


160 


Appendix 


THE  PRESS  ON  A  CENTRAL  BANK. 

Appended  hereto  is  an  editorial  symposium  on 
the  central  bank  issue.  Inasmuch  as  the  Ameri- 
can press  is  usually  a  reflex  of  the  views  of  the 
people  upon  any  important  public  issue  before 
them,  and  not  infrequently  the  moulder  of  their 
thought,  the  writer  presents  as  comprehensive  a 
summary  of  editorial  criticisms  upon  the  subject 
aforementioned,  as  it  was  possible  to  obtain,  in 
order  to  give  the  reader  an  approximate  idea  of 
the  trend  of  the  public  mind  as,  probably,  re- 
flected in  editorial  expressions.  Some  States  are 
not  included  in  this  epitome  for  the  best  of 
reasons:  their  leading  newspapers  had  made  no 
comment  upon  the  central  bank  question  and  so 
informed  the  writer,  who  endeavored  to  procure 
editorial  utterances  thereon  from  two  or  more  of 
the  principal  cities  or  towns  in  each  State.  From 
the  replies  received  by  him,  as  well  as  from  the 
published  excerpts,  it  is  evident  that  much  of  the 
supposed  prejudice  to  the  central  bank  proposal 

161 


APPENDIX 

is  non-existent.  In  many  cases  the  reader  will  see 
that  the  question  is  still  uncomprehended,  as  evi- 
denced by  the  superficial  reasoning  attempted; 
in  a  few  will  be  noted  the  deep-rooted  prejudice 
that  goes  back  to  1836;  while  in  a  surprisingly 
large  number  are  evidences  of  a  cautious  and  re- 
ceptive attitude  but,  withal,  an  unmistakable 
earnestness  to  go  to  the  bottom  of  the  question 
that  must  be  encouraging  to  the  advocates  of  true 
currency  reform.  Some  of  the  editorials  included 
discuss  the  subject  freely  and  with  a  grasp  that 
bespeaks  certain  and  definite  knowledge  of  the 
question  in  issue.  The  most  striking  disclosure, 
however,  is  the  demand  for  a  full  discussion  of 
the  proposal,  and  the  assurance  from  newspapers 
in  districts  presumably  hostile,  "to  chew  the 
arguments  offered,  look  at  them  on  both  sides, 
split  them  in  the  middle,  and  if  sound  to  accept 
them,"  as  the  Duluth  News-Tribune  so  elo- 
quently puts  it.    Such  an  attitude  is  promising. 

I.    THE  NATIONAL  PRESS. 
ALABAMA. 

Furnish  Lively  Political  Campaign. 
The  central  bank  idea  will  not  win  many  Democratic 
votes  and  there  will  be  plenty  of  insurgents  to  attack  it.  It  is 
a  Cannon-Aldrich  measure,  and  as  such  is  open  to  attack, 
viewing  past  history.  The  West  has  no  regard  for  a  central 
bank   of  issue    on   the    Aldrich  plan,   thinking  that   it  will   give 

162 


APPENDIX 

the  East  the  control  of  banking  and  financial  institutions.  If, 
by  the  strength  of  the  administration  and  Cannon  and  Aldrich 
forces,  the  bill  is  carried  through  Congress,  there  will  be  some 
lively  material  for  campaign  use  next  year,  when  a  considerable 
number  of  members  of  both  houses  will  seek  to  be  returned  to 
their  seats. — Mobile  "Register,"  Nov.  2,  1909. 

A  Complicated  Issue. 

The  monetary  commission,  headed  by  the  widely  distrusted 
Mr.  Aldrich,  is  hatching  out  a  currency  and  central  bank  plan, 
and  there  are  many  rumors  concerning  it.  No  one  knows, 
for  example,  whether  or  no  the  proposed  central  bank  is  to 
have  the  exclusive  right  of  issuing  national  bank  notes,  an 
ofifice  now  conducted  with  profit  by  the  national  banks.  Nor 
is  it  known  whether  or  no  the  central  bank  will  have  branch 
banks,  as  is  the  case  in  Canada.  Both  propositions  would  be 
sternly  resisted  by  the  banks  now  filling  the  field.  Altogether 
the  matter  is  so  full  of  problems  that  no  one  expects  it  to 
materialize  in  the  present  generation.  The  Aldrich  ambition 
will  have  to  go  unmet  and  unsatisfied  if  it  involves  a  currency 
plan  that  includes  a  central  bank. — Birmingham  "Age-Herald," 
Oct.  25,  '09. 

CALIFORNIA. 

Goes  to  the  Heart  of  the  Problem. 

At  Boston  President  Taft  paid  an  earnest  tribute  to  Senator 
Aldrich,  who,  he  said,  is  regarded  by  many  with  deep  and  unjust 
suspicion.  This  official  vindication  of  the  great  congressional 
leader  will  meet  with  a  responsive  chord  from  the  large  ma- 
jority of  well-informed  people,  regardless  of  party  lines.  The 
attempt  at  muck-raking  tactics  by  the  younger  and  less  respon- 
sible Republicans  in  Congress  has  gained  them  little  sympathy 
nor  has  it  dimmed  the  luster  of  Senator  Aldrich's  prestige  as  a 
statesman.  The  latter  is  now  behind  the  Central  Bank  bill. 
This  is  a  measure  which  lacks  the  red  fire  and  band  music  of 
muck-raking  reform,  but  which  goes  quietly  and  efTectively  to 
the  heart  of  the  evil  it  is  destined  to  destroy. — San  Francisco 
"Evening  Post,"  Sept.  16,  '09. 

163 


APPENDIX 

Not  a  Competitor  of  Banks. 

No  one  but  a  demagogue  could  possibly  write  in  that  vein 
[comment  upon  Congressman  Fowler's  criticism]  upon  a  finan- 
cial topic.  Finance  has  nothing  to  do  with  "monarchy"  or 
"democracy."  Its  operations  are  the  same  in  all  countries, 
regardless  of  the  form  of  government,  and  as  a  matter  of  fact 
in  our  case  the  most  authoritative  proposal  is  that  the  stock 
of  the  central  bank  shall  be  owned  by  the  banks  of  the  country, 
both  State  and  national,  and  that  the  management  shall  be 
elected  by  the  bank  stockholders,  with  the  addition  of  repre- 
sentatives of  the  Government.  In  no  case  can  such  a  bank 
be  a  competitor  of  the  national  and  other  banks,  but  an  aid 
to  them.  Its  functions  would  be  rediscounting  for  other 
banks — that  is,  lending  money  to  them — the  performance  of 
fiscal  services  to  the  Government,  and  the  supplying  of  currency 
in  addition  to  that  of  the  national  banks  whenever  needed. 
Central  banks  serve  a  useful  purpose  alike  in  republican  France 
and  monarchial  Germany.  Mr.  Fowler  is  doubtless  committed 
to  the  principles  of  his  own  bill,  which  provided  for  the 
substitution  of  asset  currency  for  bond-secured  currency  by  the 
present  national  banks,  with  proper  provisions  for  redemption, 
but  failed  to  provide  for  the  equally  important  function  of 
equalizing  interest  rates  and  providing  loanable  funds  in  time 
of  stress,  functions  which  only  a  strong  central  bank  can  suc- 
cessfully perform.  So  long  as  Mr.  Fowler  bases  any  argument 
on  financial  considerations,  as  he  will  have  an  opportunity  to 
do  in  Congress,  he  is  entitled  to  respectful  hearing.  When, 
however,  he  goes  outside  Congress  and  appeals  to  a  public 
not  informed  as  to  the  principles  of  banking  or  finance  on  lines 
calculated  to  appeal  not  to  reason,  but  to  prejudice,  he  shows 
himself  unworthy  of  attention. — San  Francisco  "Chronicle," 
Nov.  5,  '09. 

What  Experience  Proves. 

Now  we  insist  that  the  experience  of  mankind  is  worth 
something,  even  to  Americans.  And  that  experience  proves: 
First,  that  central  banks,  with  branches  and  power  to  issue 
notes  and  make  loans,  are  powerful  and  beneficent  financial 
institutions;  second,  that  they  do  not  "do  politics";  third,  that 

164 


APPENDIX 

they  do  not  "oppress  the  people";  fourth,  that  they  arc  the 
most  solvent  of  financial  institutions;  and  last,  that  no  country 
has  ever  been  able  to  properly  conduct  its  finances  without  one. 
— San  Francisco  "Chronicle,"  Nov.  14,  '07. 

Watch  the  Plutocrats. 

It  may  be  that  the  establishment  of  a  national  central  bank 
is  inevitable — that  there  is  no  other  way  of  curbing  the  selfish 
and  irresponsible  banking  trust.  But  we  should  realize  that 
in  doing  this  thing  we  are  dealing  with  the  most  sensitive  and 
vital  organ  of  social  life.  And  we  should  understand  that  for 
the  accomplishment  of  our  diflficult  task  the  plans  proposed 
by  plutocrats  are  not  likely  to  be  good  plans.  There  is  matter 
for  both  amusement  and  sober  warning  in  the  assurance  that 
comes  from  Mr.  Aldrich's  Monetary  Commission  that  they 
are  planning  their  big  bank  of  the  nation  on  so  stately  a  scale 
that  "political  control  will  be  made  very  difficult."  To  men  of  the 
Aldrich  type  the  political  organs  of  society  are  useful  tools; 
but  they  are  horrified  at  the  idea  that  political  power  should 
control  the  conduct  of  a  bank.  It  was  kind  of  these  gentlemen 
to  tell  us  beforehand  that  they  are  trying  to  make  it  hard 
for  the  public  authority  to  control  their  institution.  We  shall 
not  rest  now  until  we  find  means  of  making  it  easy. — 
San  Francisco  "Examiner,"  Oct.  20,  '09. 

Bankers,   Not   Public,   Distrustful. 

Some  of  the  proponents  of  this  scheme  think  the  central 
bank  should  be  the  only  bank  permitted  to  issue  currency  in 
any  shape.  This  probably  is  the  obstacle  which  stands  in  the 
way  of  the  acceptance  of  the  proposition  by  a  great  many  of 
the  bankers.  They  wish  to  be  allowed  to  manage  their  own 
affairs  individually,  speaking  of  them  as  bankers,  in  their  own 
way,  giving  the  Government  efficient  supervision  to  see  that  the 
business  is  conservatively  managed  and  especially  that  it  is 
honestly  conducted.  In  these  times  of  violent  opposition  to 
combines  and  trusts  and  large  organizations  it  is  a  little  anoma- 
lous to  note  the  general  popular  acceptance  of  the  idea  of  a 
great  central  bank,  while  the  bankers,  on  the  contrary,  seem 
to  regard  the  scheme  with  more  or  less  misgiving. — Los  An- 
geles "Times,"  Sept.  19,  '09. 

165 


APPENDIX 

The  Treasury  Funds. 

It  is  suspected  that  the  strongest  influence  behind  the 
demand  for  a  central  bank  is  a  desire  to  handle  the  treasury 
funds.  The  treasury  deposit  in  such  a  bank  would  be  at  present 
figures  something  more  than  a  billion  dollars.  The  deposits 
now  held  against  gold  certificates  amount  to  $860,000,000  and 
there  is  $150,000,000  held  as  a  reserve  for  the  redemption  of 
greenbacks.  No  part  of  this  enormous  sum  earns  interest,  as 
it  would  be  made  to  do  were  it  handled  by  a  bank.  There  is  a 
vast  bonanza  in  this  single  phase  of  the  central  bank  proposi- 
tion, but  we  may  hazard  the  prediction  that  Senator  Aldrich 
will  say  as  little  as  possible  about  this  phase  of  the  project. 
In  a  financial  way  the  present  plan  is  unscientific.  It  is  a  waste 
of  capital,  but  it  may  be  doubted  whether  the  people  are  ready 
to  turn  over  their  money  for  banking  use  without  some  reason- 
able compensation. — San  Francisco  "Call,"  Oct.  24,  '09. 

Proper  Safeguards  Possible. 
It  is  said  that  Senator  Aldrich  is  convinced  that  a  central 
bank  of  discount  in  this  country  is  the  best  solution  of  the 
problem  confronting  the  nation  in  regard  to  the  avoidance  of 
monetary  panics,  and  that  his  report  as  head  of  the  monetary 
commission,  having  the  matter  in  charge,  will  strongly  favor  the 
establishment  of  a  central  bank  of  issue.  Rumors  to  this  eflfect 
already  have  provoked  sharp  attacks  on  the  plan  although, 
as  no  details  are  known,  all  such  adverse  comment  at  this  time 
surely  is  in  the  nature  of  hypercriticism.  It  is  not  strange 
that  the  country  should  beware  the  Greeks  carrying  gifts,  but 
we  prefer  to  examine  this  proposed  gift  to  the  people  of  a 
central  bank  on  its  merits,  wholly  dissociating  the  personality 
of  Senator  Aldrich  from  the  project.  The  one  great  menace 
to  fear  is  that  Wall  Street  interests  might  control  the  bank, 
but  this,  we  believe,  can  easily  be  avoided  if  the  proper  safe- 
guards are  adopted. — Los  Angeles  "Graphic,"  Oct.  30,  '09. 

CONNECTICUT. 

Gaining  Supporters. 

The  project  for  a  central  bank  of  issue  (which  is  not,  how- 
ever, a  "United  States  bank")  is  evidently  gaining  supporters. 
With  the  bankers  of  the  country  inclining  to  favor  it  and  with 

166 


APPENDIX 

the  President  gently  commending  it,  there  is  a  chance  that  it 
may  be  tried.  The  problem,  as  Mr.  Taft  said  yesterday,  would 
be  to  keep  such  a  bank  out  of  politics  and  also  independent 
of  the  stock  market.  Perhaps  it  can  be  done.  We  shall  have 
plenty  of  discussion  before  any  action  is  taken,  for  there  is 
to  be  no  report  to  Congress  on  the  subject  for  a  year  to  come. 
—Hartford   "Times,"  Sept.   15,  '09. 

Hill  Ahead  of  Aldrich. 

It  is  a  warrantable  inference  from  the  President's  speech 
to  the  Boston  merchants  that  he  thinks  a  central  bank  of  issue, 
with  proper  safeguards,  would  be  a  good  thing;  but  he  did 
not  commit  himself  to  it — "very  definitely"  or  otherwise.  What 
he  said  in  the  speech  was  that  we  really  must  do  something 
about  our  banks  and  currency — must  mend  the  leaky  roof;  that 
the  present  trend  of  opinion  in  the  monetary  commission  is 
toward  the  establishing  of  a  central  bank;  that  we  all  need 
educating  on  the  subject;  that  he's  glad  Mr.  Aldrich  is  going  to 
turn  educator;  and  that  a  central  bank  with  politics  in  it,  or 
under  Wall  Street  influence,  wouldn't  do  at  all.  We  don't  know 
when  Nelson  W.  Aldrich  of  Rhode  Island  first  began  to  think 
of  a  central  bank.  He's  going  to  talk  about  it  in  public  halls 
pretty  soon,  according  to  the  President.  Ebenezer  J.  Hill  of 
Connecticut  was  talking  about  it  in  Congress  a  year  ago  last 
February. — Hartford  "Courant." 

DELAWARE. 

History   Against    It. 

In  the  light  of  history  there  is  a  general  feeling  to-day 
that  while  the  interests  of  the  people  might  not  be  really 
threatened  by  a  second  United  States  Bank,  such  as  President 
Taft  so  ardently  desires,  they  would  not  be  advanced  to  the 
slightest  extent.  And  the  best  commercial  and  financial  senti- 
ment of  the  country  seems  to  be  hostile  to  the  suggestion, 
deeming  it  unwise,  and  possibly  dangerous,  to  sound  and  stable 
finance,  to  create  an  institution  with  such  superior  powers  and 
resources  as  a  central  bank  would  be  bound  to  possess. — 
Wilmington  "Every  Evening,"  Sept.  29,  '09. 

167 


APPENDIX 

FLORIDA. 

Open-Minded. 
It  is  probable  that  a  fight  will  be  made  in  the  next  Congress 
for  the  establishment  of  a  central  bank.  The  purpose  in  view 
is  said  to  be  the  furnishing  of  a  flexible  currency  that  will  not 
go  in  hiding  in  time  of  greatest  need.  The  subject  cannot  be 
intelligently  discussed  even  by  men  well  posted  on  matters  of 
finance  until  the  details  of  the  plan  are  made  public.  Such  a 
bank  has  been  found  useful  in  England,  France  and  Germany. 
There  are  some  objections  to  such  a  bank  that  are  obvious. 
It  is  difficult  to  see  how  it  could  be  kept  out  of  politics,  for 
nowhere  on  earth  does  business  enter  into  politics  for  selfish 
ends  as  brazenly  as  in  the  United  States.  We  doubt  whether 
professional  financiers  in  this  country  know  much  of  finance. 
At  any  rate,  their  discussion  of  the  subject  does  not  clarify  it. 
When  they  have  finished,  it  is  muddier  than  when  they  began. 
The  country  is  to  be  congratulated,  however,  on  the  fact  that 
it  has  a  definite  plan  to  discuss.  We  have  often  heard 
that  our  country  has  the  worst  financial  system  ever  devised, 
but  there  has  been  great  difference  of  opinion  as  to  what  should 
take  its  place.  In  fact,  much  of  the  discussion  has  stopped 
with  condemning  existing  conditions  without  attempting  to 
remedy  them.  With  something  definite  to  discuss  and  with  no 
prospect  of  making  matters  worse,  the  country  may  hope  for 
the  creation  of  a  better  system. — Jacksonville  "Times-Union," 
Oct.  7.  '09. 

ILLINOIS. 

A  Changed  Public  Opinion. 

A  few  years  ago  nobody  who  suggested  a  central  bank 
under  government  supervision  for  the  solution  of  our  currency 
troubles  could  get  a  hearing  from  practical  men.  The  answer 
always  was  that,  however  desirable  such  a  bank  might  be  on 
some  theoretical  grounds,  practically  the  people  would  have 
none  of  it.  The  ghosts  of  the  two  older  Banks  of  the  United 
States  stood  in  the  way.  What  a  change  there  has  been  is 
apparent  both  from  President  Taft's  references  in  his  Boston 
address  and  from  the  addresses  of  President  Reynolds  of  the 
American    Bankers'    Association.      This    change    of   feeling    has 

168 


APPENDIX 

been  due  on  the  one  side  to  a  narrowing  of  the  function  of  the 
proposed  central  bank  so  that  it  becomes  an  institution  of  an 
entirely  different  class  from  the  "banks"  of  ordinary  every- 
day definition,  and,  secondly,  to  a  recognition  that  these  nar- 
rowed functions,  having  to  do  with  the  elasticity  of  the  cur- 
rency, must  inevitably  be  provided  for  by  governmental  action, 
and  that  it  becomes  a  question  of  technical  character  whether 
they  can  best  be  performed  by  such  a  "central  bank"  or  by 
some  method  of  formally  different  designation.  .  .  .  Should 
such  a  bank  be  empowered  to  issue  currency  based  in  part  on  a 
strong  gold  reserve  and  in  part  on  its  commercial  paper  redis- 
counts, it  is  apparent  at  first  glance  that  the  currency  would 
be  far  different  from  that  of  the  free  and  easy  asset  banking 
scheme  which  used  to  be  advocated  by  many  bankers.  It  is 
also  clear  that  the  bank  could  be  kept  free  from  domination 
by  "the  system"  in  any  of  its  forms,  whether  of  industrial 
promotion  or  stock  exchange  piratical  enterprises. — Chicago 
"Record-Herald,"   Sept.   16,   '09. 

Good  Advice. 

"The  Tribune"  itself  is  determined  to  keep  its  mind  open 
for  a  year  and  to  consider  deliberately  all  the  plans  that  may 
be  brought  forward  for  the  improvement  of  the  most  defective 
currency  system  known  to  civilization.  It  suggests  to  its 
readers  that  they  do  likewise.  Then  they  will  be  more  likely 
to  arrive  at  sound  conclusions  about  a  matter  of  great  impor- 
tance. There  must  be  a  change.  The  question  is  what  the 
change  shall  be.— Chicago  "Tribune,"  Oct.  15,  '09. 


A  Prey  for  Agitators. 

A  central  bank  would  naturally  exert  an  immense  influence 
on  American  business   in  general  and  American  financial  con- 
cerns  in  particular.     It  might  not  be  to  us  what  the   Bank  of 
England,  the  Bank  of  France,  and  the  Reichsbank  are  to  their   • 
countries.     But  it  would  be  a  great,  a  commanding,  frequently  j 
a    decisive,    influence    beyond    doubt.      Its    proper    management  ; 
would  thus  be  a  matter  of  vital  concern  with  all  solvent  banks.  , 

169  ^ 


APPENDIX 

Now,  imagine  the  situation  of  these  banks  when  the  undying 
race  of  demagogues  and  agitators  arises  in  its  might,  as  it  is  abso- 
lutely sure  to  arise,  and  makes  an  issue  of  the  way  the  bank 
is  being  operated  and  appeals  to  every  prejudice  and  every 
passion  known  to  populistic  politics.  The  bank  and  currency 
reformers  would  do  well  to  consider  this  human,  as  opposed 
to  the  purely  technical,  aspect  of  the  question. — Chicago  "Inter- 
Ocean." 


Pathway  to  Plunder, 

No  sane  man  but  knows  that  a  central  bank  scheme  formu- 
lated by  Senator  Aldrich  will  have  for  its  sole  purpose  easy 
concentration  of  bank  deposits  from  all  over  the  country  in 
whatever  fashion  renders  them  most  accessible  to  the  Wall 
Street  gamblers  who  are  his  friends  and  employers.  Such  a 
bank  will  not  be  a  bank  for  orotection,  but  a  pathway  to 
plunder. — Chicago  "Journal,"  Nov.  5,  '09. 


Favors  Government  Currency. 

A  central  bank  would  soon  drift  into  the  hands  of  manipu- 
lators of  the  Aldrich  type.  The  Senator  from  Rhode  Island 
has  never  been  above  the  scheme  of  running  the  institutions 
of  his  State  by  means  of  politicians.  George  Washington  said 
in  1787:  "The  majority  of  the  people  of  Rhode  Island  have  long 
since  bid  adieu  to  every  principle  of  honor,  common  sense  and 
honesty."  This  bad  reputation  Aldrich  has  steadily  maintained 
m  his  manipulation  of  national  politics.  The  country  will  not 
willingly  see  the  finances  of  the  entire  commonwealth  put  into 
the  hands  of  men  whom  Aldrich  might  select.  The  best  thing 
that  can  be  done  is  to  let  the  Government  issue  currency  when 
needed.  This  can  be  done  by  making  an  interchangeable  bond. 
If  we  had  adopted  this  measure  in  1863,  we  would  not  have 
been  bothered  by  panics,  constriction  of  the  currency  and  the 
woes  that  have  descended  upon  us  since  that  time. — Peoria 
"Star,"  Nov.  2,  '09. 

170 


APPENDIX 

INDIANA. 

Is  Its  Advocacy  Sincere? 

Some  exhaustive  researches  have  been  made  in  the  Eastern 
States  by  Mr.  Raymond  Patterson  of  the  Chicago  "Tribune" 
on  the  subject  of  a  central  bank.  The  consensus  of  banking 
opinion  seems  to  be  very  much  along  the  lines  followed  by 
"The  Star" — a  central  bank  is  desirable  if  it  is  of  the  right  kind; 
but  it  should  not  be  used  as  an  excuse  to  prevent  or  delay 
currency  reform  of  a  more  pressing  and  obvious  sort;  and  if 
the  bank  is  formed  it  should  be  made  secure  against  political 
abuses  or  Wall  Street  control.  It  is  not  strange  that  Mr.  Pat- 
terson finds  true  currency  reformers  everyv^^here  more  interested 
in  a  scientific  bank  currency  than  in  the  central  bank,  which 
has  been  injected  into  the  discussion,  not  from  the  most 
auspicious  sources.  It  is  not  easy  to  dismiss  the  suspicion  that 
possibly  some  of  the  anxiety  expressed  for  the  central  bank 
springs  from  persons  who  hope  to  distract  attention  from  the 
cause  of  currency  reform,  which  should  go  on  whether  we  have 
a  central  bank  or  not. — Indianapolis  "Star,"  Oct.  27,  '09. 


No  Snap  Judgment. 

This  centralizing  tendency  must  be  arrested  at  some  point. 
It  may  be  that  it  should  stop  just  before  it  carries  us  to  the 
adoption  of  a  central  bank.  At  least  no  campaign  of  education 
will  serve  a  good  purpose  which  does  not  throw  some  light 
on  these  questions.  If  such  a  bank  were  an  essential  part  of 
currency  reform,  there  would  be  nothing  more  to  say.  But 
this  is  yet  to  be  proved.  Unless  it  is  necessary,  we  do  not 
think  the  bank  should  be  established.  The  fact  that  such  insti- 
tutions have  worked  well  in  other  countries  by  no  means  proves 
that  a  central  bank  would  work  well  here.  For  our  conditions 
are  peculiar.  At  least  no  snap  judgment  should  be  taken.  The 
whole  subject  should  be  frankly  presented  to  the  people,  and 
should  be  thoroughly  discussed.  And  it  should  be  discussed 
both  in  detail  and  on  the  broadest  grounds.  We  ought  to  be 
sure   that  the  bank  will  be  a   good  thing  in   itself,   that  it  will 

171 


APPENDIX 

make  our  currency  system  what  it  ought  to  be,  and  then, 
further,  that  it  will  fit  in  with  our  political  system,  and  will 
not  have  the  effect  of  unduly  strengthening  the  central  authority. 
The  question  is  not  simply  one  of  finance,  but  also  of  politics 
and  statesmanship. — Indianapolis  "News,"  Oct.   12,  '09. 

IOWA. 

Objections  Can  Be  Removed. 

It  is  unanimously  agreed  among  currency  experts  that  the 
permanent  cure  will  be  found  in  some  system  that  does  away 
with  the  present  bond-secured  national  bank  notes.  To  do  this 
it  is  also  agreed  one  of  two  plans  must  be  adopted.  Either 
the  national  banks  must  be  allowed  to  issue  currency  based 
on  their  general  assets,  or  a  central  bank  of  issue  must  be 
established.  It  is  the  latter  plan  which  has  found  favor  with 
the  monetary  commission.  In  indorsing  it  the  commission 
will  do  so  with  two  provisos:  (1)  The  central  bank  must  be 
kept  out  of  the  hands  of  Wall  Street;  (2)  it  must  be  kept 
out  of  politics.  If  these  two  provisos  can  be  observed  other 
objections  to  the  plan  should  not  be  hard  to  overcome  in  detail. 
— Sioux   City  "Journal." 

Viewed  with  Suspicion. 

The  proposition  to  create  a  central  bank  of  the  United 
States  is  but  a  phase  of  a  tendency  so  pronounced,  so  general, 
so  restless  as  to  force  recognition  of  it  as  one  of  the  processes 
of  evolution.  That  it  has  not  sooner  joined  the  procession 
that  leads  to  concentration  is  due  to  many  causes,  the  inertia 
of  habit  being  a  leading  one,  the  survival  of  old-time  prejudices 
against  bankers  being  another.  But  it  is  coming.  This  being 
the  condition,  discussion  of  it  is  timely  and  necessary.  Grant- 
ing its  inevitableness,  what  shall  it  be,  what  functions  have, 
what  service  perform?  That  it  may  be  an  instrument  for  great 
public  good  may  be  conceded.  That  it  may  be  an  implement  for 
private  benefit  and  public  hurt  is  also  clear.  History  shows 
that.  Mr.  Taft  assured  the  country  that  Mr.  Aldrich  laid  down 
two  principles,  absolute  divorce  from  politics  and  from  "Wall 
Street,"  a  statement  that  raised  a  smile  and  excited  incredulity. 

172 


APPENDIX 

Perhaps  Mr.  Aldrich  is  now  sated  with  looking  after  private 
interests  in  the  Government  and  really  wishes  to  connect  his 
name  with  a  finance  bill  which  has  only  public  welfare  in  view. 
Such  an  attitude  will  not  be  accepted  by  the  country,  however, 
as  sincere.  The  mere  connection  of  his  name  will  insure  much 
opposition  on  the  part  of  that  large  number  who  believe  that 
no  public  good  can  come  out  of  Rhode  Island.  He  is  "under 
deep   suspicion." — Sioux  City  "Tribune." 

KANSAS. 

A  Correction  If  Safeguarded. 

The  "Eagle"  believes  that  the  proposal  is  the  most  im- 
portant subject  likely  to  come  before  the  people  in  a  quarter 
of  a  century.  If  a  central  bank  is  properly  safeguarded  so 
that  it  must  be  administered  with  integrity,  it  will  prove  a  great 
correction  of  pressing  currency  evils.  If  it  is  planned  so  that 
it  may  be  manipulated,  directly  or  indirectly,  by  the  great 
interests,  it  will  prove  a  millstone  around  the  neck  of  the 
democracy.— Wichita  "Eagle,"  Oct.  17,  '09. 

A  Perfect  Solution. 
There  would  be  little  dispute  of  it  [the  desirability  of  a 
central  bank]  if  the  question  of  control  were  out  of  the  way 
or  bankers  were  satisfied  that  the  organization  and  management 
can  be  so  devised  as  to  render  it  impossible  for  so  important 
an  institution  to  come  under  the  control  of  any  clique  of 
financiers,  which  means  the  speculative  institutions  of  New 
York.  The  central  bank  would  perfectly  solve  the  currency, 
or  panic,  question,  provided  it  could  be  kept  out  of  politics  and 
Wall   Street.— Topeka  "Daily  Capital,"  Nov.  20,  '09. 

KENTUCKY. 

Aldrich  an  Authority. 

It  would  be  unwise  to  form  a  hasty  opinion  upon  the 
matter.  The  problem  of  monetary  reform  has  many  angles,  and 
in  no  sphere  is  a  man  more  apt  to  be  carried  away  by  alluring 
theories    that    in    practice     prove     absolutely     worthless.      The 

173 


APPENDIX 

apparent  enthusiasm  manifested  by  Senator  Aldrich,  we  confess, 
does  not  increase  our  friendliness  toward  the  central  bank  idea, 
but  we  do  not  want  to  allow  his  advocacy  to  prejudice  our 
minds  against  what  may  be  genuinely  good  and  deserving  of 
support.  Senator  Aldrich  can  be  accepted  as  an  authority  on 
such  questions,  even  if  at  times  we  suspect  that  he  is  biased  in 
his  sympathy. — Louisville  "Herald,"  Oct.  26,  '09. 

Public  Sentiment  Hostile. 

If  public  sentiment  is  consulted,  the  Aldrich  financial 
scheme  will  be  given  scant  consideration.  Even  the  lapse  of 
time  since  Jackson's  day  has  not  eliminated  the  hostility  of 
the  American  people  to  a  central  bank,  but  Aldrich  and  Cannon 
paid  little  heed  to  the  people  in  revising  the  tariff  and  in  reor- 
ganizing the  currency  and  financial  system  of  the  country,  they 
are  not  likely  to  be  more  respectful  toward  public  sentiment 
or  less  zealous  in  the  service  of  the  special  interests  that 
dominate    Congress. — ^Lexington    "Herald." 

LOUISIANA. 

Its  Agitation  May  Delay  Report. 

It  is  evident  that  bankers  throughout  the  country  realize 
that  the  Secretary  of  the  Treasury  who,  in  every  case,  is  a  poli- 
tician, would  have  great  power  over  the  new  bank,  as  he  has  over 
the  present  national  banks.  In  this  connection  it  is  well  to  say 
that  President  Taft  asserted  that  Senator  Aldrich  realized  that 
politics  must  be  kept  out  of  the  bank,  and  the  bank  itself  must 
be  kept  free  from  Wall  Street  influences.  But  fine  words  butter 
no  parsnips,  and  moreover  the  thing  is  much  easier  said  than 
done  in  view  of  the  fact  that  to-day  business  and  politics  are 
closely  allied.  Senator  Aldrich,  who  has  done  more  than  any  one 
man  to  unify  business  and  politics,  is  the  man  who  is  pressing 
the  central  bank  plan,  hence  the  people  may  be  pardoned  for 
their  attitude  of  suspicion  and  distrust  as  well  as  their  belief 
that  the  financial  problem  can  be  solved  by  a  different  process 
and  one  that  will  not  tend  to  a  further  centralization  of  the 
powers  of  government. 

174 


APPENDIX 

It  is  evident  that  the  central  bank  scheme  has  been  received 
with  so  little  favor  by  the  country  that  there  is  small  chance  of 
its  adoption,  but  it  is  likely  to  prevent  or  postpone  any  effective 
reform  of  the  currency.  For  all  that  is  known  to  the  contrary, 
this  may  have  been  Aldrich's  purpose  in  devising  it. — New 
Orleans  "States,"  Oct.  19,  '09. 


A  Tragic  Admission. 

Surely,  it  is  monstrous  that,  with  population  and  resources 
that  ought  to  give  us  the  primacy  in  commerce,  we  have  always 
to  take  the  cue  from  abroad.  Yet  there  can  be  no  escape  from 
this  indignity,  till  Congress  shall  have  created  a  central  bank 
to  speak  and  act  on  our  behalf,  as  the  central  banks  of  England, 
Germany  and  France  speak  and  act,  when  the  occasion  calls. 
As  to  international  finance,  America  is  like  a  host  without  a 
general,  a  head  without  a  brain  or  a  body  without  heart.  Alere 
bulk  and  brute  strength  do  not  count  at  junctures  when  there  is 
a  supreme  need  for  strategy  and  finesse.  The  agile  dwarf  with 
the  rapier  may  do  the  business  for  the  giant  with  the  broad- 
sword, if  the  dwarf  has  a  quick  eye  and  a  long  arm. 

Nor  is  it  the  mere  loss  of  prestige  that  hurts,  in  such  cases 
as  this.  In  the  course  of  a  wild  speculative  deal,  there  is  bound 
to  be  an  immense  lockup  of  capital  and  this  lockup  is  keenly 
felt  when  legitimate  trade  revives.  Thousands  of  merchants 
and  manufacturers  now  have  to  pay  an  extra  rate  of  interest, 
because  there  was  no  central  bank  to  call  a  halt  on  Wall  Street 
betimes.  It  would  be  hypercriticism  to  blame  our  bankers,  as 
a  class,  for  the  pinch  in  the  money  market.  Thousands  of  banks, 
scattered  over  a  continent,  could  not  act  in  concert,  if  they 
would.  And,  even  if  these  thousands  of  widely  scattered  banks 
desired  to  act  in  unison,  there  is  no  machinery  by  which  to  make 
the  will  synonymous  with  the  deed. 

Have  we  no  statesmen  wise  and  brave  enough  to  untie,  or 
cut,  this  Gordian  knot?  To  answer  this  question  in  the  affirma- 
tive is  to  admit  that  we  are  without  genius  for  leadership  and 
that  we  must  forever  meekly  follow  Europe  at  the  lockstep,  as 
we  have  hitherto  done.  A  tragic  admission  for  a  race  which, 
in   its   puny   youth,   originated   the   Monroe    Doctrine,   gave   the 

175 


APPENDIX 

French  ambassador  his  passports  and  went  to  war  with  Britain 
herself  over  the  right  of  search! — New  Orleans  "Times-Demo- 
crat," Oct.  26,  '09. 

Central  Bank  Required. 

If  we  had  a  great  central  bank  in  the  United  States  it  could 
issue  notes  to  meet  any  home  demand  for  money,  and  gold  would 
not  come  into  question  at  all,  but  for  the  lack  of  such  a  source 
of  supply  our  banks  have  drawn  gold  from  Europe  to  such  an 
extent  that  the  foreign  financiers  have  become  alarmed  for  their 
own  supply  and  have  put  an  almost  prohibitory  check  on  the 
drain.  The  Treasury  cannot  lend  money  on  stocks  or  real  estate 
or  any  sort  of  securities  upon  which  loans  are  based,  because  it 
has  no  power  whatever  to  make  loans.  Therefore,  when  there 
is  a  great  expansion  of  business  and  money  is  required  to  carry 
it  on  there  are  no  means  of  adding  to  our  stock  of  available 
cash  except  by  selling  our  products  to  Europe  or  of  borrowing 
there  at  the  increased  rates.  Thus  a  central  bank  of  issue  would 
operate  as  a  protector  and  regulator  of  the  money  market.  When 
commercial  or  financial  conditions  become  threatening,  it  steps 
into  the  breach  with  its  great  resources  and  wide  connections, 
taking  steps  which  will  prevent  the  wasteful  misapplication  of 
capital,  but  will  not  cause  a  currency  famine,  as  in  the  case  of 
similar  crises  in  America. — New  Orleans  "Picayune,"  Oct.  23,  '09. 


MARYLAND. 

Aldrich  a  Drawback. 

President  Taft  will  find  in  due  season  that  the  association  of 
Mr.  Aldrich  with  any  movement  which  professes  to  have  for 
its  main  object  a  reform  in  the  interest  of  the  people,  will  be  a 
grievous  handicap  on  that  movement,  however  worthy  and  de- 
sirable the  reform  which  is  contemplated  may  be.  The  people 
cannot  be  expected  to  accept  a  statesman  of  Mr.  Aldrich's  affilia- 
tions as  a  faithful  and  disinterested  champion  and  promoter  of 
their  interests.  It  is  a  reflection  upon  their  intelligence  to  as- 
sume, with  their  knowledge  of  Mr.  Aldrich's  record,  of  his  as- 
sociation with  monopolistic  interests,  that  they  will  believe,  as 

176 


APPENDIX 

the  President  says  he  believes,  in  Mr.  Aldrich's  earnest  desire  to 
aid  the  people.  Mr.  Taft  has  blundered.  He  is  highly  esteemed 
by  his  countrymen  for  his  admirable  personal  qualities,  but  his 
judgment  is  gravely  at  fault  when  he  gives  his  unqualified  ap- 
proval to  Mr.  Aldrich's  leadership  in  the  movement  for  banking 
and  monetary  reform.  Why  should  the  President  proclaim  his 
implicit  confidence  in  this  statesman,  when  the  people  have 
found  him  ever  active  in  promoting  the  welfare  of  interests 
which  have  grown  rich  and  powerful  at  the  expense  of  the 
masses?— Baltimore  "Sun,"  Sept.  16,  '09. 

Discussion   Preposterous. 

Currency  reform  is  on  the  calendar  for  1911.  This  shows 
that  the  commission  either  is  not  sure  that  its  panacea  should 
be  taken  even  if  well  shaken  in  congressional  debate,  or  else  it 
has  come  to  the  conclusion  that  a  slow  and  painless  death  for 
its  report  would  about  fill  the  measure  of  the  country's  needs 
just  now.  Nothing  would  be  more  preposterous  than  to  revive 
a  panic  topic  at  the  time  the  country  is  on  the  rising  tide  of 
prosperity,  as  would  be  the  case  by  agitating  the  currency  ques- 
tion with  the  circulation  working  like  a  charm. — Baltimore 
"American,"  Nov.  10,  '09. 

MASSACHUSETTS. 

Opposition  Due  to  Prejudice. 

The  subject  of  establishing  a  central  bank  of  issue  in  this 
country  may  be  said  to  have  been  brought  fairly  within  the  do- 
main of  practical  politics  by  the  speech  of  President  Taft  iti 
this  city,  and,  incidentally,  by  the  address  of  George  M.  Rey- 
nolds, the  retiring  president  of  the  American  Bankers'  Associa- 
tion, at  their  annual  convention  in  Chicago.  The  subject  is  evi- 
dently to  be  seriously  discussed  during  the  coming  year,  and 
perhaps  until  a  bill  on  the  subject  has  been  passed  by  Congress. 
Two  of  the  objections  which  are  most  often  heard  to  the  propo- 
sition were  touched  upon  by  the  President  in  his  address — the 
danger  of  control  by  a  group  of  financiers  in  Wall  Street,  and 
the  danger  that  the  bank  woukl  become  involved  in  politics. 

177 


APPENDIX 

Whatever  the  substantial  merits  of  the  project  for  a  central 
bank,  it  is  probable  that  these  particular  objections  rest  largely 
upon  prejudice.  Conditions  have  radically  changed  since  the 
Bank  of  the  United  States  subjected  itself  to  criticism  in  the 
third  decade  of  the  last  century,  both  upon  the  ground  of  un- 
wise financial  management  and  interference  in  politics.  It  is  not 
conceivable  that  any  sane  president  of  a  central  bank  would 
again  enter  upon  speculative  movements  on  a  large  scale  or 
that  he  would  undertake  to  use  the  influence  of  the  bank  in 
purely  party  politics.  Not  only  should  the  statutes  of  the  bank 
prohibit  participation  and  speculation  by  its  officers,  but  finan- 
cial and  public  opinion  would  be  emphatically  against  such  a 
policy.  Moreover,  representatives  of  the  Government  should 
sit  in  the  board  of  directors  or  form  a  separate  supervisory 
board,  and  they  would  efifectively  check  unwise  or  speculative 
policies. — Boston  "Transcript,"  Sept.  16,  '09. 


Feeling  His  Way. 

Senator  Aldrich  is  feeling  his  way  in  the  West.  His  initial 
declaration  in  favor  of  maintaining  the  integrity  of  existing  banks 
and  opposing  a  system  of  branch  banks,  of  preventing  political 
influence  in  the  control  of  any  central  institution  that  may  be 
established,  and  also  of  so  organizing  the  system  as  to  prevent 
sectional  control,  is  perfectly  safe  ground.  None  will  dispute 
him  on  these  points.  The  difficulty  will  be  in  convincing  the 
people  that  a  central  bank  can  be  organized  without  one  or  more 
of  these  defects.  And  yet  a  bank  of  banks,  doing  business  with 
the  national  banks  throughout  the  country,  owned  and  controlled 
by  them  through  proportionate  ownership  of  the  stock,  might 
be  made  proof  against  any  of  these  defects  and  serve  the  needs 
of  currency  reorganization. — Boston  "Herald,"  Nov.  8,  '09. 

MICHIGAN. 

Perilous. 

To  establish  a  central  bank  of  issue  would  be  to  radically 
change  our  system,  and  before  that  step  is  taken  there  should 
be  a  more  apparent  need  for  it  than  now  exists.     A  central  bank 

178 


APPENDIX 

has  its  perils  and  in  the  estimation  of  a  good  many  very  thought- 
ful men  they  are  greater  than  those  contained  in  our  present 
system. — Grand  Rapids  "Evening  Press,"  Sept.  17,  '09. 

MINNESOTA. 

Must  Be  Safeguarded. 

Theoretically,  the  plan  promises  well,  yet  there  is  certain  to 
be  wide  opposition  to  its  adoption.  If  we  are  to  have  a  central 
bank,  the  United  States  government  would  have  to  go  out  of 
the  business  of  issuing  notes.  This  means  also  that  the  green- 
backs, a  familiar  means  of  exchange  among  the  people,  must  be 
retired,  and  their  places  taken  by  the  promises  to  pay  of  the 
central  bank. 

The  issue  is  one  of  vast  moment.  It  must  be  remembered, 
too,  that  the  country  west  of  the  AUeghenies  is  just  now  dis- 
posed to  look  with  suspicion  upon  any  legislation  proposed  and 
favored  by  Senator  Nelson  W.  Aldrich  of  Rhode  Island,  who 
is  standing  as  particular  sponsor  for  the  central  bank  plan. 
However  sound  and  desirable  the  plan  may  be,  it  will  be  handi- 
capped in  the  West  by  Aldrich's  support.  It  will  be  necessary 
to  make  it  very  plain  to  the  people  that  the  plan  is  so  safe- 
guarded that  the  machinery  for  the  central  bank  cannot  be  op- 
erated for  the  benefit  of  Wall  Street  and  the  speculative  inter- 
ests of  the  East.— St.  Paul  "Pioneer  Press,"  Oct.  25,  '09. 

How  to  Secure  It. 

The  country  will  not  tolerate  a  central  bank,  unless  its  free- 
dom from  political,  speculative  and  money-power  influences  be 
guaranteed.  That  is  certain.  But  it  is  also  certain  that  such 
guarantees  can  be  given.  By  limiting  dividends  to  a  small  per- 
centage, the  administration  of  the  bank  as  a  purely  profit- 
making  institution  can  be  prevented.  By  placing  it  in  the  West, 
its  immunity  from  political  manipulation  can  be  secured.  While 
a  proper  definition  and  limitation  of  its  functions  will  operate  to 
divorce  it  from  speculation  and  render  it  an  auxiliary  of  the 
legitimate,  financial  and  commercial  activities  of  the  country. 

These  immunities  from  malign  influences,  these  separations 
from  politics  and  the  exchanges,  these  confinements  to  strictly 

179 


APPENDIX 

necessary  and  legitimate  functions,  are  enjoyed  by  the  great 
central  quasi-governmental  banks  of  Europe.  The  science  of 
finance  is  sufficiently  advanced  to  enable  us  to  establish  a  similar 
institution,  similarly  secured. — Minneapolis  "Journal,"  Sept.  18, 
'09. 

"Must  Be  Shown." 
It  is  evident  that  we  are  going  to  hear  a  great  deal  about 
the  central  bank  plan  from  now  on,  because  the  ideas  of  those 
engaged  in  thinking  out  plans  for  curing  the  currency  evils  of 
the  country  seem  to  be  directed  largely  toward  that  as  a  solu- 
tion. The  monetary  commission  headed  by  Nelson  W.  Aldrich, 
Senator  from  Rhode  Island  and  boss  of  the  republic,  will,  it  is 
taken  for  granted,  include  in  its  forthcoming  report  a  plan  for  a 
central  bank  of  issue.  Before  action  is  taken  everybody  will 
know  more  than  is  known  now  about  the  currency  and  the  cen- 
tral bank.  There  will  be  much  discussion,  and  there  cannot  be 
too  much.  In  the  meantime  the  popular  attitude  of  suspicion 
and  alertness  is  the  correct  one.  The  country  will  "have  to  be 
shown."— Duluth  "Evening  Herald,"  Sept,  23,  '09. 

If  Sound,  Acceptable. 

The  West  is  always  anxious  to  hear,  to  see  and  to  learn. 
More  than  any  other  section,  it  has  the  open  mind.  Moreover, 
it  has  been  born,  came  to  thinking  age  and  secured  its  vote 
since  the  days  of  Andrew  Jackson  and  the  "bank  war."  It  has 
no  undying  prejudice  against  a  central  bank,  and  though  natur- 
ally a  little  suspicious  of  Greeks  bearing  gifts,  it  will  be  glad  to 
hear  the  arguments  Mr.  Aldrich  has  for  his  financial  scheme. 
It  will  not  promise  to  swallow  them  without  chewing,  nor  hesi- 
tate to  look  at  them  on  both  sides  and  split  them  in  the  middle. 
But  if  they  are  sound,  it  will  accept  them. — Duluth  "News- 
Tribune,"  Oct.  26,  '09. 

MISSISSIPPI. 

Aldrich  Under  Suspicion. 

It  is  not  a  violent  presumption,  after  reading  his  Boston  ad- 
dress, that  President  Taft  has  had  enough  of  tariff  revision.  The 
presumption  is  one  that  he  may  dispel — it  is  to  be  hoped  that 

180 


APPENDIX 

he  will,  after  he  finds  that  he  cannot  divert  public  interest  from 
that  issue  to  monetary  reform.  This  is  plainly  the  central 
motive  of  his  speech.  The  "Herald"  does  not  believe  the  di- 
version was  helped  through  the  stress  Mr.  Taft  placed  upon  its 
championship  by  Senator  Aldrich.  His  appearance  in  the  role 
of  an  Aldrich  panegyrist  did  not  add  at  all  to  the  popularity  of 
the  President's  address.  He  had  much  better  have  left  that 
apostle  of  predatory  wealth  to  have  dealt  himself  with  "the 
deep  suspicion  with  which  he  has  been  regarded." — Vicksburg 
"Herald,"  Sept.  16,  '09. 

MISSOURI. 

Country  Bankers  Apprehensive. 

In  spite  of  the  assurance  given  in  inspired  articles  sent  out 
from  Washington,  that  politics  will  play  no  part  in  a  central 
government  bank,  the  small  bankers  are  apprehensive  lest  the 
contrary  prevail.  They  can  hardly  conceive  that  it  would  be 
in  keeping  with  the  game  of  politics  for  any  party  to  set  up 
an  institution  such  as  a  government  bank  without  manning 
it  with  politicians,  as  only  by  taking  advantage  of  such  oppor- 
tunities are  great  political  machines  built  up.  If  past  history 
were  not  sufficient  to  warn  the  American  people  against  the 
experiment,  the  fact  that  Senator  Aldrich  is  at  the  head  of 
the  movement  for  a  central  bank  should  of  itself  be  enough 
to  defeat  the  project.  Every  act  of  Aldrich  is  pointed  in  the 
same  direction,  to  exploit  the  general  public  for  the  benefit 
and  enrichment  of  the  privileged  few,  and  the  central  bank 
idea  is  no  exception. — Kansas  City  "Post,"  Oct.  20,  '09. 

A  Complicated  Subject. 

Apparently  the  commission  has  not  been  able  to  agree 
on  any  comprehensive  plan  of  currency  legislation.  The  en- 
tire subject  is  so  complicated,  so  entangled  with  irreconcilable 
theories  and  prejudices  and  it  involves  so  vitally  the  business 
prosperity  of  the  country  that  a  campaign  of  education  is  very 
desirable.  Bankers  and  congressmen,  including  the  eminent 
members  of  the  monetary  commission,  need  enlightenment 
quite   as   much   as   the   masses    of   the   people,   and   the   opinion 

181 


APPENDIX 

prevails  in  the  West  that  Mr.  Aldrich  himself  should  undergo 
a  thorough  course  of  training  on  the  subject  of  the  rights 
of  the  people,  as  contrasted  with  the  wishes  of  the  great 
financial  interests  which  he  represents,  before  he  can  be  trusted 
to  formulate  a  Currency  Reform  Law. — Kansas  City  "Times," 
Nov.  4,  '09. 

Mr.  Aldrich  to  Bide  a  Wee. 

Senator  Aldrich,  it  appears,  has  concluded  that  he  will 
during  his  forthcoming  address-making  tour  through  the 
greater  cities  of  the  West  refrain  from  broaching  that  cask  of 
aavanced  thought  in  which  he  filters  his  Central  Bank  idea. 
This  is  merely  an  additional  proof  that  the  distinguished 
master  of  the  Senate  is  one  of  the  most  perspicacious  states- 
men of  his  generation.  There  is  no  present  Western  senti- 
ment of  any  large  dimension  favorable  to  the  Central  Bank 
idea,  unless  it  be  among  the  more  powerful  financial  interests 
which  are  in  some  measure  allied  in  Chicago.  As  the  banker 
for  the  great  Southwest,  St.  Louis  is  content  for  a  time.  Mr. 
Aldrich's  decision  to  bide  a  wee  before  springing  his  plan 
indicates  that  he  is  a  mind  reader. — St.  Louis  "Times,"  Nov.  2, 
'09. 

Mr.   Aldrich's   Wise   Words. 

Several  things  were  made  plain  by  Mr.  Aldrich  in  his 
address  in  St.  Louis.  All  sections  of  the  country  and  all  in- 
terests have  a  vital  concern  in  the  establishment  of  a  strong, 
flexible  currency  system.  No  European  scheme,  no  matter 
how  well  it  may  be  adapted  to  the  needs  of  its  own  people, 
could  wisely  be  set  up  in  the  United  States,  except  after  ma- 
terial alterations.  The  overthrow  of  the  second  United  States 
Bank  by  Jackson  has,  as  an  example,  no  value  for  us,  favor- 
able or  adverse,  in  our  situation,  for  nobody  now  seriously 
proposes  an  institution  on  the  plan  of  that  bank. 

As  the  Rhode  Island  senator  reminds  his  Western  con- 
stituency, the  financial  scheme  which  will  be  adopted  will  take 
into  consideration  the  interests  of  the  West,  the  South  and 
of   the   whole   people.     The   talk    in    some    newspapers    and   by 

182 


APPENDIX 

many  politicians  that  the  East  aims  to  oppress  the  West  in- 
dustrially and  financially  is  incited  by  ignorance  or  demagogy. 
The  well-being  of  each  locality  is  necessary  to  the  prosperity 
of  the  other  members  of  the  community.  When  any  region 
suffers  the  whole  country  is  affected  adversely.  In  devising 
the  framework  of  an  improved  currency  scheme  the  National 
Monetary  Commission,  of  which  Mr.  Aldrich  is  chairman, 
has  a  large  task  on  its  hands.  It  takes  the  conditions  and  the 
interests  of  all  regions  and  of  all  activities  into  consideration, 
and  suggestions  from  all  of  them  will  be  gratefully  received. — 
St.  Louis  "Globe-Democrat,"  Nov.  10,  '09. 

Concentration  Feared. 

The  country  generally  entertains  a  doubt  of  the  proposed 
central  bank.  It  fears  the  possible  still  greater  concentration 
of  financial  power  that  might  result  from  it.  Perhaps  not 
until  Congress  meets  will  the  subject  receive  serious  dis- 
cussion, though  the  propaganda  for  moulding  favorable  senti- 
ment will  continue.  The  outlook  is  that  the  members  of  the 
majority  party  will  be  less  easily  controlled  by  the  Aldrich 
interests  for  a  financial  scheme  than  they  were  for  the  tariff 
measure.— St.  Louis  "Star,"  Oct.  26,  '09. 

NEBRASKA. 

Opposed  to  Aldrich. 

People  in  Nebraska  who  don't  have  a  high  regard  for  Wall 
street — and  that  includes  nearly  everybody  in  the  state — will 
be  satisfied  to  sit  back  and  let  Congressman  Fowler  scrap 
it  out  with  Senator  Aldrich  on  the  central  bank  question. 
The  opposition  to  Aldrich  that  is  being  stirred  up  in  the 
east  is  the  most  hopeful  sign  of  the  times  from  this  viewpoint. 
— Lincoln  "News,"  Oct.  25,  '09. 

Believes  in  Taft. 

At  Boston  Mr.  Taft  with  emphasis  said  that  he  and  Sen- 
ator Aldrich  were  determined  that  in  presenting  new  financial 
legislation   they  would  keep   out  Wall   street  influence   and  the 

183 


APPENDIX 

meddling  of  spoils  politics.  When  Mr.  Taft  makes  such  state- 
ments, it  has  been  proved,  he  means  what  he  says  and  exe- 
cutes his  promises.  In  publicly  taking  Mr.  Aldrich  into  co- 
operation, in  vouching  for  the  good  faith  of  the  chairman  of 
the  committee  on  finance,  he  has  disarmed  any  jealousy  the 
senator  may  have  entertained  and  immeasurably  strengthened 
the  potential  capacity  of  the  senate  in  arranging  a  coherent 
policy  in  the  monetary  system. — Omaha  "Daily  Bee,"  Sept.  17, 
•09. 

NEVADA. 

For   Wall   Street   Only. 

The  bankers'  fiat  (the  clearing-house  certificate)  was 
created  for  the  purpose  of  giving  Wall  street  temporary  power 
to  make  and  unmake  panics,  and  the  central  bank  is  conceived 
to  give  it  the  power  permanently.  The  genius  of  the  central 
bank  is  like  unto  that  of  the  Bank  of  England,  and  similar 
to  the  Canadian  Bank  of  Commerce.  It  is  to  be  a  corporation 
of  private  individuals  to  which  the  government  gives  the  ex- 
clusive right  to  issue  money  as  a  sort  of  go-between  from  the 
government  to  the  people.  In  other  words,  it  is  a  special 
privilege  to  a  few  of  the  richest  men  in  the  United  States  and 
the  world,  and  the  most  sacred  privilege  that  exists  under  this 
or  can  exist  under  any  government — that  of  issuing  money  and 
declaring  its  character.  It  can  make  money  plentiful  or  create 
a  stringency  at  will.  Its  whole  plan  and  modus  operandi  will 
be  to  play  a  fiddle  while  the  people  dance. — Tonopah  "Sun,"  Oct. 
9.  '09. 

NEW  JERSEY. 

A  Plausible  Scheme. 

The  Central  Bank  plan  has  been  promulgated,  and  the  men 
of  business  affairs  have  an  opportunity  for  studying  its  worth 
as  a  panacea  for  the  cure  of  past  and  possible  future  financial 
Mis.  The  scheme  is  a  plausible  one  and  likely  to  meet  with  favor 
in  some  circles  of  finance,  but  it  is  not  altogether  assuring 
of  stability  and  of  freedom  from  attack  by  designing  'frenzied' 
financiers.  —Camden  "Courier,"  Oct.  6,  '09. 

184 


APPENDIX 

Hard   Work   Ahead. 

"One  may  go  a  long  way  in  an  effort  to  controvert  the  un- 
derlying principles  which  ought  to  govern  a  central  banking 
institution,  properly  founded,  without  accomplishing  much;  but 
it  daily  becomes  more  apparent  that  the  campaign  of  education 
which  the  Monetary  Commission  and  some  of  the  leading  bank- 
ers of  the  country  have  started  in  favor  of  a  central  bank  is  to 
have  a  rough  and  rugged  road  to  travel  before  it  can  over- 
come the  sentimental,  even  if  superficial,  objections  which  seem 
so  prevalent." — Newark  "Evening  News,"  Oct.  13,  '09. 

For  Practical  Financiers. 

An  attack  upon  the  credit  of  a  central  bank  would  also  in- 
volve the  credits  of  its  depositing  banks,  which  would  all  be 
sensitive  to  the  same.  Mr.  Dawes  instances  the  panic  of  1837 
as  an  example.  The  question  of  a  new  system  of  finance  can- 
not be  settled  by  theorists  and  doctrinaires;  it  is  one  for  prac- 
tical and  experienced  financiers  to  grapple  with,  the  men  who 
are  in  close  touch  with  the  large  business  affairs  of  the  country 
and  to  whom  the  problems  of  finance  are  a  daily  study.  These 
men  are  at  once  conservative  and  progressive,  prudent  and  en- 
terprising. They  seek  the  maximum  of  benefits  at  the  mini- 
mum of  risk,  and  that  rule  they  would  apply  to  the  great  finan- 
cial problem  that  Congress  at  its  coming  session  will  take  up 
in  earnest  spirit. — Newark  "Star,"  Oct.  28,  '09. 

NEW  YORK. 

Indispensable. 

If  anything  more  than  a  makeshift  is  to  be  adopted  there 
must  be  a  central  bank,  or  the  individual  national  banks  of  the 
country  must  receive  the  privilege  of  issuing  notes  upon  their 
credit  somewhat  after  the  manner  provided  for  in  the  Fowler 
bill  last  winter,  or  the  country  must  adopt  the  Canadian  plan 
of  branch  banking,  with  each  bank  having  the  right  of  issue. 
The  Fowler  plan  would  be  a  rash  experiment.  Nothing  com- 
parable with  it  exists  anywhere.  Nowhere  in  Europe  would  it 
be  seriously  proposed  to  trust  the  important  function  of  note 
-issuing  to  thousands   of  separate  institutions,  most  of  them  in 

185 


APPENDIX 

the  hands  of  men  who  are  not  bankers  in  any  proper  sense  of 
the  term.  The  Canadian  plan,  while  it  has  obvious  merits,  is 
impossible.  The  revolution  which  the  substitution  of  branch 
banks  for  the  little  local  independent  banks  of  the  country 
would  entail  is  inconceivable.  Moreover,  with  either  of  these 
systems  "high  finance,"  through  the  control  of  the  greatest 
banks,  would  have  its  hand  on  the  currency  issue,  and  if  there 
were  any  national  regulation  of  it  politics,  too,  might  enter. 
The  difficulties  that  confront  the  central  bank  inhere  in  every 
other  possible  system  and  the  others  present  additional  diffi- 
culties of  their  own. — N.  Y.  "Tribune,"  Sept.  17,  '09. 

More  Discussion  Necessary. 

Opinions  will  differ  as  to  whether  Mr.  Reynold's  safeguards 
against  intrusion  of  politics  are  sufficient  to  achieve  that  end, 
and  it  will  also  be  observed  that  three  important  considerations 
— how  the  existing  banknote  currency  is  to  be  retired,  how  far 
the  central  bank,  through  branches  or  otherwise,  shall  compete 
with  other  institutions,  and  what  shall  be  the  ratio  of  coin  re- 
serve to  note  circulation — are  not  dealt  with  in  his  speech.  As 
it  stands,  his  outline  of  the  scheme  provides  excellent  basis  for 
further  expert  discussion  of  the  matter.  The  "Evening  Post"  is 
not  prepared  to  adopt  the  project,  however,  until  these  and  cer- 
tain other  considerations  have  been  more  fully  debated.  In  par- 
ticular, it  is  necessary  to  be  always  on  one's  guard  against  hasty 
analogies  between  the  needs  of  the  American  banking  and  com- 
mercial organism,  and  those  of  other  nations  where  the  central 
bank  is  now  in  successful  operation. — N.  Y.  "Evening  Post," 
Sept.  15,  '09. 

Must  Have  Specific  Proposal. 

We  are  not  at  all  of  the  opinion  that  the  central  bank  is 
the  only  way.  We  are  entirely  of  the  opinion  that  the  various 
possible  programs  should  be  laid  before  the  people — now. 
In  the  United  States  there  is  an  almost  limitless  ignorance  on 
all  financial  questions.  The  general  public  must  learn,  because 
under  our  system  of  government,  this  business  question  will  be 
dragged  by  adroit  politicians  to  the  ballot  box.     Well,  then,  let 

186 


APPENDIX 

us  begin.  A  vague  groping  into  the  air  is  not  susceptible  of 
definite  discussion.  A  specific  proposal  is.  Senator  Aldrich's 
program — if  we  have  guessed  it  right,  from  his  cautious 
avoidance  rather  than  from  his  bold  embrace  of  a  declaration — 
may  be  wrong;  it  may  be  right;  but  if  he  will  offer  his  pro- 
gram, and  if  others  will  offer  their  programs,  then  the 
discussion  can  open;  the  education  can  start;  the  public  can 
learn. — New  York  "Press,"  Nov.  10,  '09. 

Finance. 

Mr.  Aldrich  knows,  whatever  the  merits  of  the  question, 
the  people  of  the  United  States  will  at  present  not  accept  a  cen- 
tral bank.  Does  agitating  for  one,  therefore,  appear  to  him  a 
convenient  method  of  avoiding  any  currency  legislation  what- 
ever? Such  an  outcome  would  please  most  bankers. — "Collier's 
Weekly,"  Oct.  9,  '09. 

Political  Danger  Foreseen. 

The  question  of  assets  currency,  therefore,  hinges  on  the 
possibility  of  insuring  prudent  and  honest  management  of  the 
banks  issuing  the  notes.  This  might  be  done  if  the  privilege  of 
issuing  notes  were  permitted  only  to  a  great  central  bank  in  the 
management  of  which  the  government  itself  would  share.  But 
then  comes  the  question,  could  such  a  bank  keep  itself  free 
from  the  suspicion  of  mingling  in  politics? — Buffalo  "Express," 
Sept.  24,  '09. 

No  Central  Bank. 

The  "Sun"  will  always  oppose  a  central  bank  of  issue.  Such 
a  bank  is  intended  by  the  Monetary  Commission.  The  policy 
of  that  body  as  now  formally  disclosed  by  Senator  Aldrich 
points  to  no  other  consummation.  It  is  our  conviction  that  a 
central  bank  of  issue  bearing  the  same  relation  to  the  money 
of  this  country  that  the  banks  of  France  and  England  bear 
to  the  money  of  those  countries  would  prove  a  national  evil. 
This  country  is  traditionally  and  temperamentally  unsuited  to 
such  an  institution.     If  Mr.  Aldrich  and  his  associates  by  their 

187 


APPENDIX 

united  genius  can  fashion  a  central  bank  whose  functions  and 
powers  shall  be  purely  automatic  and  mechanical,  well  and  good. 
But  such  a  bank  with  us  is  impossible.  We  have  developed  no 
class  in  America  from  which  we  could  create  or  recruit  the  ad- 
ministration and  control  of  such  an  institution,  while  to  isolate 
it  from  our  political  life  is  hopeless.  We  wish  it  were  other- 
wise. It  is  a  national  misfortune  that  we  cannot  create  a  bank 
of  issue,  regulation  and  control  like  the  Bank  of  England.  But 
it  is  a  misfortune  to  which  we  are  habituated  and  which  is  an 
accepted  condition  of  our  economic  existence. — N.  Y.  "Sun," 
Nov.  9,  1909. 

Must   Learn   From   Rivals. 

That  a  great  central  bank  is  the  cheapest,  wisest  and  every 
way  the  best  agenqy  for  dealing  in  credits  and  regulating  the 
supply  of  currency  according  to  the  demands  of  business,  the 
experience  and  example  of  every  civilized  nation  today  demon- 
strates. And  if  we  are  to  stay  in  the  race  for  the  world's  com- 
merce and  get  our  share  of  its  business  we  must  learn  by  our 
rivals  and  adopt  their  methods  or  go  them  better  with  our 
own.  We  have  been  far  behind,  with  our  clumsy,  iron-bound, 
bond-secured,  inelastic,  war-time  currency,  and  it  is  again  for- 
tunate that  we  make  our  changes  while  prosperity  waits  at  our 
doors  and  the  public  credit  is  impregnable. — Brooklyn  "Standard- 
Union,"  Sept.  19,  1909. 

Tw^o  Wall  Street  Sides. 

The  President  himself  suggests  that  the  "control  of  the 
monetary  system  shall  be  kept  free  from  Wall  Street  influences." 
There  is  a  sense  in  which  that  is  true,  and  it  is  a  pity  that  the 
President  did  not  indicate  clearly  that  he  spoke  in  that  sense. 
The  central  bank  should  be  independent  of  all  financial  cliques, 
and  of  all  merely  speculative  influences.  But  it  is  neither  de- 
sirable nor  possible  that  the  central  bank  should  be  administered 
without  regard  for  such  wisdom  in  thought  and  boldness  in 
policy  as  originated  so  recently  in  Wall  Street,  and  rescued 
the  country  from  the  embarrassments  into  which  it  was  plunged 
by  the   workings  of  that  monetary  system  which   Mr.  Taft  so 

188 


APPENDIX 

aptly  describes.  It  would  have  been  better  if  Mr.  Taft  had 
recognized  the  obligation  of  his  predecessor  to  the  only  part 
of  Wall  Street  which  is  worth  consideration,  rather  than  that 
he  should  have  pandered  to  a  popular  prejudice  which  it  is  bet- 
ter to  instruct  than  yield  to.  *  *  *  Wise  consideration  to- 
ward Mr.  Taft,  as  well  as  duty  toward  the  country's  needs,  dic- 
tates a  certain  benevolent  reserve  toward  Senator  Aldrich's 
financial  masterpiece  until  it  can  be  judged  upon  its  merits, 
rather  than  upon  forecasts  of  them.  That  is  the  surer  way 
to  get  a  central  bank  law  which  shall  merit  as  well  as  receive 
judicious  approval. — New  York  "Times,"  Sept.  16,  '09. 

Benefit  to  People. 
If  that  idea  of  the  central  bank  which  is  favored  by  Presi- 
dent Taft  and  expressed  by  Congressman  Vreeland  is  carried 
out,  fear  of  a  financial  oligarchy  is  reduced  to  the  minimum. 
Political  power  will  be  balanced  by  financial  demands.  In  divi- 
dends limited  to  4  per  cent,  the  surplus  will  go  to  the  treasury 
of  the  country  and  in  the  end  to  the  benefit  of  the  people.  But 
even  if  it  were  to  fall  into  the  control  of  a  few  wealthy  men 
we  would  be  no  worse  oflf  in  that  respect  than  we  are  now,  and 
would  have  in  addition  the  advantage  we  do  not  now  have  of 
being  able  to  put  our  fingers  exactly  on  the  troubles  created 
in  a  bank  which  controls  and  must  do  business  in  the  public 
light.  That,  under  our  present  system,  we  are  not  able  to  do 
until  after  the  damage  is  done  and  we  have  time  to  reflect  on 
cause  and  effect. — Brooklyn  "Eagle,"  Sept.  19,  1909. 

A  Change  Since  Jackson's  Day. 

Much  of  the  talk  against  a  central  bank  is  the  outcome  of 
conceptions  regarding  the  United  States  Bank  which  was  sup- 
pressed by  Andrew  Jackson,  that  Democrat  who  professed  to 
be  most  democratic  but  who  was  the  most  autocratic  gentle- 
man who  ever  sat  in  the  President's  chair.  But  times  have 
changed  since  Jackson,  there  is  great  advance  in  financial  knowl- 
edge and  in  ability  to  meet  financial  requirements  and  the 
central  bank  now  proposed  will  diflfer  in  many  ways  from  the 
institution  which  Jackson  smashed. — Troy  "Times,"  October  6, 
1909. 

189 


APPENDIX 

Prejudice   Can  Be   Overcome. 

A  curious  state  of  opinion  exists  in  regard  to  the  creation 
of  a  central  bank  along  lines  cognate  to  those  advocated  by 
the  Chamber  of  Commerce  committee.  Among  experts  there 
is  substantial  agreement  as  to  the  desirability  of  such  an  in- 
stitution, yet  there  is  great  nervelessness,  almost  hopelessness, 
in  its  advocacy.  The  implication  is  that  however  great  would 
be  its  benefit  it  cannot  be  obtained;  that  the  prejudice  and  ig- 
norance of  congress  and  of  the  people  are  so  deep-seated  as 
to  be  practically  irremovable.  There  is  thus  in  effect  confession 
of  American  inefficiency — that  we  are  unable  to  adopt  to  our 
use  a  device  that  modern  civilization  elsewhere  finds  helpful. 
*  *  *  The  truth  probably  is  that  the  traditional  prejudice 
against  a  central  bank  is  by  no  means  as  strong  as  it  is  supposed 
to  be  and  that  its  last  remnants  would  disappear  if  the  men 
of  congress  who  personally  are  enlightened  had  but  the  cour- 
age to  act  according  to  their  convicitions. — New  York  "Globe," 
Nov.  12,  '07. 

NORTH  CAROLINA. 

Viewed  With  Suspicion. 

It  becomes  more  and  more  apparent  that  there  is  a  con- 
certed action,  headed  probably  by  Senator  Aldrich,  to  revolu- 
tionize the  banking  business  even  mor,?  completely  than  Mr. 
Fowler  would  have  done.  This  new  revolution  is  for  a  central 
bank.  We  can  express  no  definite  opinion  upon  the  subject 
until  the  plan  is  formulated  and  announced.  We  suspect  that 
the  scheme  is  in  the  hands  of  the  same  people  who  controlled 
the  late  revision  of  the  tariff  and  that  the  result,  if  it  is  suc- 
cessful, will  be  a  banking  system  about  as  subservient  to  the  big 
interests  as  the  tariff  was  made  subservient  to  them;  but  we 
shall  see  when  the  plan  comes  out.  If  it  should  transpire  that 
this  central  bank  movement  is  similar  to  the  one  which  Andrew 
Jackson  broke  all  to  pieces,  or  if  it  is  one  giving  the  control 
of  bank  note  issues  to  a  selected  list  of  multi-millionaires  in 
New  York,  then  we  shall  have  the  Andrew  Jackson  row  over 
again  and  in  the  meantime  all  the  banks  and  all  the  people  will 
suffer. — Charlotte  "Observer,"  Oct.  7,  '09. 

190 


APPENDIX 

OHIO. 

The   Aldrich   Bank. 

There  is  so  much  opposition  gathering  to  the  central  bank 
feature  of  the  proposed  currency  system,  that  by  the  time  Sen- 
ator Aldrich  gets  in  his  report  it  will  be  quite  unanimous;  and 
if  not  by  that  time,  it  soon  will  be.  It  is  very  unfortunate  that 
Senator  Aldrich  is  in  charge  of  the  purpose  to  present  a  plan 
for  the  establishment  of  a  new  currency  system.  There  is  a 
deep  seated  feeling,  throughout  the  country,  that  Mr.  Aldrich's 
sympathy  is  with  the  interests,  and  that  his  currency  scheme 
will  be  for  their  benefit. — Columbus  "Ohio  State  Journal,  Oct. 
11,  '09. 

Not  Wanted. 

The  idea  of  a  great  central  bank  never  has  been,  is  not 
now  and  probably  never  will  be  popular  in  this  country.  The 
eflfect  of  such  a  bank  would  be  to  centralize  financial  power  and 
to  put  it  into  the  hands  of  a  few  persons  to  make  and  unmake 
panics  at  will.  The  men  who  are  behind  the  scheme  have  been 
tried  in  the  tariff  and  other  matters  and  have  been  found  without 
appreciation  of  the  public  needs  or  their  duty  with  regard  to 
those  needs.  They  will  not  be  trusted  in  the  matter  of  this 
proposed  central  bank. — Columbus  "Dispatch,"  Oct.  24,  '09. 

A    Fruitless    Undertaking. 

Aldrich  closes  his  fruitless  trip  for  laying  the  foundation 
for  a  new  United  States  bank,  by  warning  the  country  against 
the  ghost  of  Andrew  Jackson,  who  killed  the  old  bank.  Never- 
theless, Jackson's  ghost,  like  Banquet's  ghost,  will  continue  to 
haunt  Aldrich,  both  awake  and  asleep,  as  long  as  he  shall  at- 
tempt to  revive  the  monster  which  Jefferson  destroyed.  A  much 
greater  man  than  Aldrich  met  his  political  death  by  a  similar 
attempt. — Lorain  "Daily  News,"  Nov.  23,  '09. 

Would   Serve   Wall   Street. 

In  case  of  a  casual  stringency  nowadays  the  process  of  re- 
lief is  to  have  the  United  States  treasury  grab  a  bag  of  money 
and  run   over  to   Wall   Street  and  help  out.     It  will   doubtless 

191 


APPENDIX 

be  much  more  convenient  to  have  a  central  bank  located  right 
in  Wall  Street,  with  power  to  control  the  money  market.  Of 
course,  much  depends  on  who  is  given  this  power.  If  the  Presi- 
dent appoints  another  galaxy  of  corporation  hirelings,  oT  course, 
a  politician  or  two,  or  some  fellow  with  friendly  interest  in  Wall 
Street  may  slip  in.  However,  Mr.  Taft  and  Mr.  Aldrich  will 
show  the  minimum  of  danger  in  this  to  the  wild,  woolly  and  wall- 
eyed west  in  their  junket  speeches.  Get  ready  to  swallow. — 
Cincinnati  "Post,"  Oct.  8.  '09. 

Taft  Interrogated. 

President  Taft  tells  us  that  a  central  government  bank  of 
issue  (as  proposed  by  Senator  Aldrich)  will  be  a  fine  thing  for 
us  all.  But,  says  the  president,  it  must  not  be  controlled  by 
Wall  street.  President  Taft  points  out  a  danger,  and  he  owes 
it  to  us  all  to  tell  us  how  that  danger  may  be  avoided.  Answers 
to  these  three  questions  will  help:  What  do  you  mean  by  Wall 
street  control?  How  could  Wall  street  be  prevented  from 
controlling  the  central  government  bank  if  its  stock  is  owned 
by  individuals  or  national  banks?  Do  you  favor  the  owner- 
ship of  the  central  bank  by  the  federal  government  itself? — 
Columbus  "Citizen,"  Sept.  27,  '09. 

A  Fantastic  Dream. 

If  the  President  does  not  believe  in  the  establishment  of  a 
central  bank  of  issue  until  those  two  requirements  are  fully  and 
completely  covered  then  such  bank  now  is  but  a  fantastic  dream, 
as  unreal  as  the  vision  of  Kubla  Khan's  castle  conjured  up  by 
the  crazed  brain  of  Coleridge.  Administrations  are  placed  in 
power  by  political  manipulation,  and  they  are  admittedly  and 
openly  kept  in  power  through  popular  political  activities,  and 
charges  have  repeatedly  been  made  that  Wall  street  influences 
have  been  of  great  service  to  Presidents  and  Administrations, 
as  well  as  arrayed  against  them.  President  Taft  has  made  good 
his  pledges  in  so  many  instances  that  the  country  awaits  with 
confidence,  respect  and  yet  curiosity  for  this  governmental 
bank  of  issue,  the  profits  of  which  will  accrue  to  the  people  at 

192 


APPENDIX 

large  and  not  to  private  individuals.  The  people  are  a  unit  with 
the  President  in  his  idea  of  such  a  bank  if  he  can  have  it  securely 
bound  by  his  two  indispensable  requirements. — Cincinnati  "En- 
quirer," Sept.  20,  '09. 

PENNSYLVANIA. 

Best  Opinion  Favors  It. 

The  President  is  not  afraid  to  say  that  the  trend  of  all  the 
best  opinion  has  been  towfard  the  creation  of  a  central  bank 
of  issue,  which  should  not  interfere  with  the  ordinary  business 
of  other  banks,  but  should  exercise  that  authorized  and  regu- 
lated control  over  the  issues  of  currency  for  which  necessity 
has  at  times  compelled  associated  banks  to  invent  an  irregular 
substitute.  Every  great  nation  except  the  United  States  has 
some  such  system  as  is  here  proposed,  of  which  the  Bank  of 
England  and  the  Bank  of  France  are  the  best  exemplars,  and 
currency  panics  such  as  have  repeatedly  distressed  us  are 
with  them  unknown.  To  assume  that  this  country  is  incapable 
of  profiting  by  the  experience  of  the  world,  or  that  we  cannot 
maintain  a  national  monetary  system  for  fear  either  of  "Wall 
Street,"  on  the  one  hand,  or  of  "politics"  on  the  other,  is  to 
confess  the  failure  of  our  American  institutions. — Phila.  "Public 
Ledger,"  Sept.  16,  '09. 

For  the  Voters. 

The  central  bank  may  be  a  good  thing  or  a  bad  thing. 
We  don't  know,  as  yet.  But  it  will  receive  full  and  fair  dis- 
cussion and  eventually  the  electorate  will  pass  upon  it  as  it  does 
upon  all  other  questions. — McKeesport  "Times,"  Oct.  15,  '09. 

West  Against  It. 

Senator  Aldrich's  campaign  to  educate  the  West  in  favor 
of  a  central  bank  is  asserted  to  be  entered  upon  with  an  open 
mind.  The  Senator  is  open  to  conviction  on  any  monetary  plan 
so  it's  a  central  bank;  and  the  West  is  likely  to  respond  that  it 
is  equally  open  to  the  conviction  that  the  central  bank  won't  do» 
—Pittsburg  "Dispatch,"  Nov.  9,  '09. 

193 


APPENDIX 

Commercial   Paper. 

This  recent  artificial  panic,  with  all  its  hurts  that  have  come 
or  may  yet  come  before  everything  is  righted,  vvrill,  in  the  end, 
prove  a  blessing  to  this  country  if,  as  now  seems  likely,  the 
conspiracy  of  Wall  street  to  destroy  the  character  of  commercial 
paper  is  exposed  and  broken  and  if  commercial  paper  attains  its 
rightful  place  in  the  currency  and  banking  systems  of  the  nation. 
Nothing  else  would  contribute  to  the  revival  of  real  business  so 
quickly  and  so  fully  as  that.  Merchants  and  manufacturers 
have  been  made  to  feel  by  bankers  that  gilt-edged  commercial 
paper  is  a  security  inferior  to  the  "cats  and  dogs"  of  Wall 
street  gamblers.  A  cessation  of  all  such  estimates  would  mark 
the  beginning  of  banking  sanity. — Phila.  "North  American"  May 
8,  '08. 

Senator  Aldrich's  Open  Mind. 

When  the  fire  engine  needed  a  new  coat  of  paint  the  fore- 
man of  the  volunteer  company  said  he  didn't  care  "what  color 
she  was  painted  so  long  as  she  was  painted  red."  On  the  sub- 
ject of  banking  reform,  Senator  Aldrich  has  an  equally  open 
mind.  In  the  opening  sentences  of  his  address  in  Chicago — the 
first  of  his  educational  lectures — he  said:  "The  question  of  a 
definite  plan  for  reforming  existing  conditions  has  not  yet  been 
taken  up  or  considered  by  the  commission."  But  a  little  later 
he  said:  "The  conclusion  has  been  reached  with  unanimity  that 
bank  note  issues  should  always  be  made  under  government  con- 
trol, or  at  least  subject  to  strict  governmental  restrictions  and 
limitations,  and  that  this  can  only  be  successfully  done  through 
one  central  and  exclusive  bank  of  issue."  So  the  Senator  has 
an  open  mind  on  the  subject  of  banking  reform,  but  there  has 
got  to  be  a  central  bank  with  exclusive  rights  of  note  issues. 

It  is  not  true,  as  the  Senator  supposes,  that  the  opinion 
of  financial  authorities  is  unanimous  that  note  issues  should 
be  made  exclusively  by  one  central  bank.  We  have  had  notes 
issued  by  a  multiplicity  of  banks  for  a  great  many  years,  and  the 
difficulties  that  call  for  remedy  are  in  no  wise  connected  with 
the  multiplicity  of  banks,  but  with  the  fact  that  the  bond  se- 
curity, which  was  imposed  not  to  protect  note  holders,  but  to 

194 


APPENDIX 

force  a  market  for  government  bonds  during  the  civil  war,  pre- 
vents the  elasticity  of  the  currency,  and  that  the  lack  of  an  ef- 
ficient redemption  system  is  a  barrier  to  the  contraction  of  the 
currency  when  it  happens  to  be  redundant. 

In  order  to  cure  the  inelasticity  of  our  currency  it  is  not 
necessary  to  adopt  the  most  revolutionary  change  that  could 
be  conceived  of — the  concentration  into  one  bank  of  the  exclu- 
sive right  to  issue  notes. — Phila.  "Record,"  Nov,  7,  '09. 

The   Only   Remedy. 

It  will  be  noted,  however,  that  the  President,  the  Monetary 
Commission  (unofificially),  the  Congressional  leaders  and  the 
National  Bankers'  Association  are  pretty  well  agreed  that  a 
central  bank  is  the  only  possible  remedy  for  existing  conditions. 
That  seems  reasonable  and  is  certainly  the  apparent  deduction 
from  the  absurdities  and  limitations  of  our  present  system.  The 
Western  bankers  are  right  enough  in  their  fear  that  such  a 
bank  may  be  a  menace.  It  is  just  in  the  matter  of  details  that 
the  crux  of  the  whole  proposition  lies.  Every  other  nation 
on  earth  has  a  central  bank  and  the  principle  may  be  conceded. 
What  we  want  to  know  is  how  a  bank  may  be  established  in 
this  country  which  shall  prove  an  effective  regulator  of  the  cur- 
rency and  discharge  other  normal  functions  of  banking  without 
becoming  an  organ  of  speculation  or  the  source  of  vast  power 
to  be  used  by  its  managers  should  they  prove  at  any  time  un- 
scrupulous. This  is  what  the  Monetary  Commission  is  work- 
ing on  at  this  moment.  If  it  can  provide  a  system  with  ade- 
quate checks  it  will  be  adopted,  since  there  seems  no  other 
resource.  When  that  plan  is  proposed  it  will  be  subjected  to 
the  severest  scrutiny  by  every  possible  influence.  It  does  not 
seem  beyond  the  abilities  of  the  Commission  to  prepare  a  work- 
able and  commendable  plan,  but  until  such  a  plan  is  produced 
there  is  nothing  to  do  but  wait  in  patience. — Phila.  "Inquirer," 
Oct.   17,  '09. 

No    Alternative    to   a   Central    Bank. 

We  hope  one  monetary  fact  will  be  understood  early.  Al- 
most always,  when  the  subject  of  a  central  government  bank 
is  discussed  by  bankers,  the  desirability  of  an  elastic  currency 

195 


APPENDIX 

that  will  expand  and  contract  to  meet  the  fluctuating  needs  of 
business  is  admitted;  but  pretty  often  it  is  suggested  that  the 
central  bank  is  only  one  of  two  alternative  methods  by  which 
that  object  may  be  accomplished.  The  other  alternative — al- 
though presented  in  many  forms  that  differ  as  to  details — has 
long   been   known   as   the   "Baltimore   plan." 

The  Baltimore  plan  proposes,  in  effect,  that  the  national 
banks  shall  be  empowered  individually  to  issue  circulating  notes 
not  secured  by  government  bonds,  and  that  the  Government 
shall  guarantee  payment  of  the  notes.  Without  Government 
guaranty  the  plan  would  be  still  more  objectionable,  for  the 
noteholders'  security  would  not  be  perfect.  With  such  guaranty 
the  Government  would  simply  hand  over  its  credit  to  six  or 
seven  thousand  private  institutions,  trusting  to  their  six  or 
seven  thousand  private  judgments  and  senses  of  honor  not  to 
abuse  it.  This  is  what  some  of  our  eminent  financial  friends 
mean  by  "keeping  the  Government  out  of  the  banking  business." 

What  we  hope  will  be  clearly  understood  is  that  no  such 
plan  can  be  put  into  effect.  The  public  may  possibly  be  sus- 
picious of  a  central  bank,  but  we  are  vastly  mistaken  if  it  is  not 
far  more  suspicious  of  empowering  several  thousand  private 
concerns  to  issue  circulating  notes  on  their  general  credit.  If 
credit  notes,  to  pass  current  as  money,  are  to  be  issued  the 
credit  must  be  that  of  the  government.  None  other  would  be 
acceptable.  And  if  the  notes  are  to  be  based  on  the  Govern- 
ment's credit  the  Government  must  issue  them  by  its  own 
agency.  If  we  are  to  have  an  elastic  currency  there  is  no  al- 
ternative to  a  central  bank. — Phila,  "Saturday  Eve'g  Post,"  Nov. 
27,  '09. 


Discussion   Necessary. 

The  Aldrich  central  bank  project  is  now  before  the  coun- 
try. Every  banker  is  studying  it.  Every  business  man  of  large 
interests  or  small  is  considering  it.  No  one  is  yet  ready  for 
decision.  Discussion  must  come  first.  The  new  central  bank 
proposal  seeks  at  all  points  to  use  experience  elsewhere  and  to 
introduce  here  the  best  characteristics  of  the  three  great  Euro- 
pean central  banks.     The  small  rural  bank  will  lose  the  profit 

196 


APPENDIX 

it  has  drawn  from  currency  issues,  of  small  advantage  to  the 
big  city  banker.  This  will  all  be  balanced  by  the  great  national 
advantage  of  a  single  strong  banking  center,  guiding  the  bank- 
ing and  note  issue  of  the  country  as  in  the  three  European  coun- 
tries, whose  business  centers  at  Berlin,  Paris  and  London. — 
Phila.  "Press,"  Oct.  8,  '09. 


RHODE  ISLAND. 

Obstacles  May  Be  Removed. 

It  is  high  time  that  our  slipshod  and  dangtrous  system  or 
lack  of  system  came  to  an  end.  A  central  bank  might  be  devised 
that  would  degenerate  into  a  mere  plaything  of  politics;  but  there 
ought  not  to  be  any  insuperable  obstacle  in  the  way  of  establish- 
ing such  an  institution  as  shall  be  forever  guarded  from  partizan 
or  personal  manipulation. — Providence  "Journal,"  Oct.  20,  '09. 


SOUTH   CAROLINA. 

Unreasonable  Opposition. 

"Essentially  there  is  no  reason  why  the  people  should  op- 
pose the  operation  of  a  bank  under  government  auspices,  and, 
practically,  the  plan  has  been  found  to  work  admirably  and 
those  nations  which  employ  it  have  maintained  a  greater  stabil- 
ity in  their  monetary  systems  than  the  United  States  has  en- 
joyed. Practically  all  the  European  governments  issue  their 
currency  through  central  banks,  under  the  direction,  though 
not  in  ownership  of  the  government,  and  their  currency  is  more 
elastic  and  altogether  more  satisfactorily  controlled  than  is  that 
of  the  United  States.  The  prejudice  against  the  central  bank  in 
this  country  is  based  on  political  tradition  and  not  on  scientific 
objection.  It  will  not  be  easy  to  eradicate,  but  the  public  may 
be  educated  to  regard  the  matter  upon  its  merits,  and  if  they 
put  their  minds  upon  the  question  they  may  overcome  what  ap- 
pears to  be  rather  an  unreasonable  opposition." — Charleston 
"Eve.  Post,"  Oct.  6,  '09. 

197 


APPENDIX 

A  Superior   System. 

It  may  be  doubted  if  there  has  ever  been  a  period  in  the 
history  of  the  nation  when  clear-thinking  financiers  did  not 
recognize  the  preponderating  superiority  of  a  central  bank  of 
issue  over  any  other  system  of  national  finance,  but  there  has 
been  an  undue  timidity  in  the  expression  of  this  belief,  due, 
we  may  suppose,  to  the  total  defeat  which  the  United  States 
Bank  suffered  at  the  hands  of  Andrew  Jackson.  Knowing  well 
that  the  fact  of  the  suspension  of  that  bank  weighed  more  heav- 
ily with  people  generally  than  the  true  reasons  for  that  sus- 
pension, men  have  put  up  with  the  inefficient  sub-treasury  sys- 
tem rather  than  make  a  bold  and  energetic  campaign  for  the 
renewal  of  a  Government  bank,  predicating  their  fight  on  the 
fact  that  the  public  hostility  to  the  old  bank  was  due,  not  to  the 
principle  of  such  an  institution,  but  almost  wholly  to  the  pri- 
vate and  political  nature  of  it.  Jackson,  it  is  true,  attacked  the 
constitutionality  of  the  charter,  but  his  view  was  contrary  to  the 
decisions  of  the  Supreme  Court,  the  final  tribunal  of  appeal. 
So  it  is  that  the  Jackson  victory  has  held  the  country  bound  for 
years  to  a  system  of  national  finance  which  at  best  was  a  make- 
shift, and  which  has  been  bolstered  up  so  often  that  it  may  now 
be  taken  for  granted  that  no  improvements  will  ever  make  it 
efficient. — Charleston  "News  and  Courier,"  Sept.  27,  '09. 


TENNESSEE. 


Would  Split  Republicans. 


It  (the  central  bank)  will  be  almost  certain  to  make  wider 
the  breach  which  the  tariff  bill  created  in  the  Republican  party 
while  it  will  receive  practically  solid  Democratic  opposition. 
If  carried  through  Congress  by  a  combination  of  the  adminis- 
tration with  Senator  Aldrich  and  the  Speaker  of  the  House  it 
will  become  a  live  issue  in  the  congressional  elections  of  next 
year  and  together  with  the  tariff  issue  will  be  likely  to  make 
doubtful  states  of  several  of  the  commonwealths  of  the  North- 
west now  regarded  as  safely  Republican. — Nashville  "Banner," 
Oct.  25,  '09. 

198 


APPENDIX 

A  Central  Bank  Can  Be  Devised. 

A  central  bank  is  another  one  of  the  things  "The  News 
Scimitar"  is  not  afraid  of.  The  power  is  in  the  hands  of  the 
people  to  see  to  it  that  the  balance  of  power  in  such  an  insti- 
tution is  placed  with  the  people  or  the  government.  A  central 
bank  can  be  devised  that  will  still  further  reduce  the  danger 
of  panics.  The  price  for  this  benefit  can  be  wholly  paid  by  the 
people  if  they  allow  "the  interests"  to  have  the  balance  of  power 
in  it.  The  tendency  is  toward  centralization  or  the  elimination 
of  the  middle  man  and  his  maintenance  in  all  things.  It  cannot 
be  avoided  and  must  be  faced  frankly  and  bravely  and  intelli- 
gently solved  in  the  interest  of  the  people.  It  is  a  danger  or  a 
benefit  according  to  the  alertness  of  the  people,  and  progress 
will  impose  on  the  people  greater  benefit  or  greater  danger 
whether  or  no.  The  alternative  of  greater  danger  or  greater 
benefit  will  further  inspire  the  people  to  greater  discrimination 
in  selecting  their  leaders. — Memphis  "News-Scimitar,"  Oct.  20, 
1909. 

TEXAS. 

"Queered"  by  Aldrich. 

However  sound  the  principle  may  be,  and  however  merito- 
rious the  scheme  of  application  devised  by  Mr.  Aldrich,  there  is 
a  vast  volume  of  prejudice  in  this  country  against  the  establish- 
ment of  a  central  bank,  and  to  that  historic  prejudice  will  be 
added  the  prejudice  which  the  measure  will  inherit  from  the 
circumstances  of  Mr.  Aldrich's  authorship. — Galveston  "News." 

Monroe   Doctrine  Invoked. 

The  latest  scheme  is  for  a  United  States  bank — "a  central 
bank  of  issue" — which  would  give  Wall  Street  control  of  the 
finances   of  the  country.     *     *     * 

Now,  such  a  bank  can  not  possibly  be  kept  from  Wall 
Street  influences  and  from  manipulation  for  political  purposes. 
The  head  of  a  bank  of  the  United  States  is  master  of  American 
business  and  of  American  politics.  As  Jackson  said,  it  is  too 
great  a  power  for  any  one  man  to  have.     *     *     * 

199 


APPENDIX 

Senator  Aldrich  is  now  in  Europe  with  the  monetary  com- 
mission. They  will  report  that  the  Bank  of  England  is  a  fine 
thing,  and  the  Bank  of  France,  and  we  ought  to  have  a  Bank 
of  the  United  States.  But  America  is  not  Europe.  The  Mon- 
roe doctrine  ought  to  be  extended  to  bar  out  such  foreign  ideas 
to  keep  the  United  States  free. — Houston  "Chronicle,"  Sept.  29. 
1909. 

Ideal  System,  If  Safe. 
The  history  of  finance  has  demonstrated  repeatedly  that  a 
people  will  not  accept  more  money  than  they  need.  Money  can 
not  be  forced  upon  them.  It  invariably  goes  back  to  its  issuer. 
A  central  bank,  with  its  finger  on  the  pulse  of  trade,  can  an- 
ticipate the  need  of  business  for  currency  and  supply  it  in  just 
the  requisite  quantity.  The  sole  bank  of  issue  is,  as  we  have 
said,  an  ideal  system,  but  is  it  safe?  To  this  question  we  can 
answer  yes — if  its  owners  are  absolutely  above  human  temp- 
tation.— Beaumont  "Journal." 

Central  Bank  Possible. 

It  is  possible  that  a  central  bank,  established  and  operated 
by  the  Government,  that  would  have  the  effect  of  steadying 
interest  rates,  that  would  be  the  means  of  issuing  to  the  people, 
through  the  banks,  currency  in  exchange  for  the  deposit  of  com- 
mercial paper  and  make  possible  the  conversion  of  bank  credits 
into  available  cash  in  times  of  need,  would  be  a  bulwark  of 
strength  against  panics  and  financial  upheavals,  which  the 
people  would  welcome  and  acclaim.  It  will  be  necessary,  how- 
ever, to  assure  the  public  that  such  a  bank  has  not  been  pro- 
jected on  such  lines  as  will  permit  its  domination  by  a  small 
group  of  financiers  and  that  it  will  not  become  a  political  ma- 
chine.— San  Antonio  "Daily  Express,"  Oct.  25,  '09. 

State    Bank   Issues. 

We  have  never  been  able  to  divorce  ourselves  from  the 
idea  that  State  banks,  under  proper  regulations,  should  be  priv- 
ileged to  issue  notes.  In  this  way,  each  community  could  sup- 
ply itself  with  currency  as  required.  A  central  bank  would  be 
too  far  removed  from  those  sections  which  most  need  an  emer- 

200 


APPENDIX 

gency  currency.  What  the  Democrats  should  do  is  to  demand 
a  repeal  of  the  tax  on  State  bank  issues,  thus  permitting  the 
people  in  the  several  communities  to  use  their  credit  to  move 
their  crops  and  their  manufactured  products  as  the  necessity 
arises. — Waco  "Times-Herald,"  Oct.  13,  '09. 

VIRGINIA. 

An  Adamantine  Prejudice. 

There  are  strong  arguments  in  favor  of  the  central  United 
States  Bank,  but  there  are  strong  arguments  against  it;  and  over 
and  above  them  all  is  an  adamantine  prejudice,  combined  with 
a  fear  that  is  by  no  means  unreasonable.  It  would  be  hard  to 
think  of  any  proposition  to  which  it  would  be  more  difficult 
to  win  the  American  people  than  the  central  bank  idea  which 
almost  divided  the  Republic  in  its  early  days. — Norfolk  "Land- 
mark," Sept.  16,  '09. 

Wall  Street  Feared. 

With  millions  of  capital  and  almost  unlimited  government 
deposits  at  its  disposal  the  bank  can  readily  control  the  money 
market.  But  this  danger  is  hardly  so  great  as  that  attached  to 
authorized  note  issues  on  commercial  paper.  Were  such  issues 
based  only  upon  approved  bonds,  the  authorization  might  prove 
a  godsend  to  America.  But  where  the  paper  of  Wall  Street 
brokers  and  New  York  trust  companies  is  made  the  basis  of 
exchange,  the  stability  of  the  emergency  currency  becomes 
most  doubtful.  *  *  *  Surely  the  twilight  of  political  forget- 
fulness  and  the  gloom  of  financial  abandon  have  fallen  on  Ameri- 
can leaders  if  they  recklessly  adopt  a  central  bank  plan  which 
leaves  the  way  clear  for  the  bank  to  become  the  handy  tool  of 
Wall  Street.— Richmond  "Times-Dispatch,"  Oct.  7,  '09. 

WASH.,  D.  C. 

Must  Be  Fully  Debated. 

Whatever  may  be  the  merits  of  the  plan  to  establish  a  cen- 
tral bank  of  issue,  it  has  long  been  clear  that  this  plan  will  meet 
with  the  most  bitter  opposition,  in  and  out  of  Congress.     This 

201 


APPENDIX 

fact  is  emphasized  by  a  statement  recently  given  out  by  so  able 
an  authority  on  financial  matters  as  Charles  G.  Dawes,  former 
Comptroller  of  the  Currency,  now  at  the  head  of  a  large  finan- 
cial institution  in  Chicago.  While  it  is  undoubtedly  true  that 
the  supporters  of  the  central  bank  plan  can  make  a  strong  case 
for  it  in  many  respects  and  while  the  need  is  plain  for  taking 
the  kinks  out  of  our  financial  system,  such  arguments  as  those 
of  Mr.  Dawes  coming  from  a  man  of  such  standing  as  he,  cannot 
be  brushed  aside.  They  must  be  met  and  answered  to  the  satis- 
faction of  the  public  or  the  central  bank  will  not  be  established. 
—"Times,"  Oct.  30,  '09. 

WASHINGTON. 

Would  Be  an  Improvement, 

Of  course  there  are  some  perfectly  valid  objections  to  be 
urged  to  the  central  bank  plan;  but  he  is  indeed  a  dull  man 
who  cannot  realize  that  a  central  bank,  controlled  by  the  fed- 
eral government,  would  be  an  improvement  over  the  present 
lax  and  unsatisfactory  system.  Fortunately  we  are  not  with- 
out light  on  the  subject.  It  will  not  be  an  experimental  enter- 
prise. American  students  of  finance  know  what  the  Bank  of 
England  means  in  Great  Britain,  and  they  are  familiar,  also, 
with  the  French  system.  They  know,  too,  that  the  bankers 
of  this  nation  probably  would  not  have  been  forced  to  the  des- 
perate and  legally  questionable  alternative  of  flooding  the  coun- 
try with  clearing  house  certificates  in  the  fall  of  1907  if  a  strong, 
well  organized  and  properly  managed  central  bank  had  been  in 
existence  at  that   time. 

Clothed  with  proper  and  adequate  power,  a  central  bank 
could  have  performed  in  a  responsible  way  the  same  duties 
which  the  clearing  house  associations  of  the  country  performed 
in  an  irresponsible  way.  It  is  not  intended  to  pass  any  criticism 
upon  the  clearing  house  associations ;  for  the  ability  and  good 
faith  displayed  by  them  during  that  unhappy  period,  they  de- 
serve the  highest  possible  praise.  They  rescued  the  country 
from  financial  disaster,  and  they  were  forced  to  resort  to  an  ex- 
pedient of  doubtful  legality  in  order  to  do  it.  It  was  a  hazard- 
ous undertaking,  and  if  public  confidence  in  the  soundness  and 

202 


APPENDIX 

stability  of  the  American  situation  had  been  less  strong,  it  is  a 
question  whether  the  country  would  have  been  tided  over  the 
rough  place. — Seattle  "Post-Intelligencer,"  Oct.  26,  '09. 

Wide  Divergence  Prevails. 

Whether  Fowler  secures  his  joint  debate  or  not,  he  has 
started  a  discussion  that  ultimately  will  lead  to  legislation  on 
the  currency.  All  the  authorities  admit  that  something  must  be 
done.  As  to  the  cure,  there  is  wide  divergence  of  opinion. 
Congress  will  hesitate  to  establish  a  central  bank,  as  urged  by 
Senator  Aldrich,  but  opposed  by  Representative  Fowler  and  also 
by  Mr.  Bryan.  But  the  reform  of  the  currency  system,  which  is 
now  in  process  through  the  efforts  of  the  currency  commission, 
is  certain  to  make  progress. — Seattle  "Times,"  Oct.  31,  *09. 

WISCONSIN. 

Must  Have  Assurances. 

There  are  undoubtedly  many  good  things  to  be  said  for  a 
central  bank.  It  is  the  plan  employed  by  nearly  all  of  the  lead- 
ing foreign  nations  in  the  regulation  of  their  currency.  Ger- 
many has  it,  and  Great  Britain,  and  France.  It  is  a  convenient 
unifier  of  the  various  financial  agencies,  and  a  very  pleasant 
refuge  in  time  of  a  crisis.  And  it  has  many  other  merits.  But 
the  people  of  the  United  States  will  never  accept  a  central  bank, 
even  though  they  are  shown  that  it  is  the  proper  remedy  for 
present  ills,  unless  they  are  given  absolute  assurance  that  it 
will  be  their  bank  and  not  Wall  Street's.  The  money  moguls 
of  the  country  can  not,  and  must  not,  control  the  government's 
financial  afifairs.  They  have  far  too  much  power  as  it  is  without 
being  given  an  instrument  to  work  their  will. — Milwaukee 
"Journal." 

The  Risk  Too  Great. 

It  is  possible  that  the  central  bank  idea  might  be  adapted 
to  our  uses,  though  Mr  Fowler  thinks  that  it  is  unsuited  to  this 
country  because  of  conditions  existing  here,  but  the  danger  is 
too  great  that  it  will  be  made  the  instrument  for  still  further 

203 


APPENDIX 

entrenching  the  forces  of  centralized  wealth  to  justify  the  risk. 
We  know  that  "the  interests"  are  in  the  saddle  at  Washington 
and  we  may  be  sure  that  they  will  permit  no  opportunity  to 
pass  to  enlarge  their  privileges  to  confiscate  the  people's  earn- 
ings and  strengthen  their  control  of  government. — Milvs^aukee 
"News,"  Oct.  21,  '09. 


11.  THE  FINANCIAL  AND  COMMERCIAL  PRESS. 

Abundant  Discussion  Necessary. 

However  this  may  be,  it  remains  to  say  that  Senator 
Aldrich's  speeches,  tactful  as  they  have  been,  have  been  ac- 
cepted by  the  press  and  the  public  at  large  as  pointing  strongly 
to  his  own  belief  in  the  central  bank,  and  for  this  reason  have 
evoked  rather  widespread  comment  on  that  expedient.  Care- 
fully as  Mr.  Aldrich  has  guarded  against  arguing  formally  for 
a  central  bank,  his  discussion  of  the  great  State  banks  of 
Europe,  read  between  the  lines,  has  made  it  clear  where  he 
stood  on.  the  general  question. 

It  is  not  without  interest  to  observe  that  such  unfavorable 
criticisms  as  are  made,  either  in  public  speeches  or  in  the  press, 
divide  themselves  into  objections  based  on  the  political  situation 
which  would  result,  and  objections  based  on  the  financial  re- 
sults. The  feeling  that,  however  disinterested  might  be  the 
purposes  of  the  framers  of  a  law  for  a  central  bank,  it  could 
not  be  kept  absolutely  out  of  politics,  appears  to  be  deep- 
rooted. 

We  do  not  cite  these  objections  as  in  all  respects  either 
logical  or  final;  the  interest  in  them  arises  chiefly  from  the 
fact  that  so  many  and  so  varied  criticisms  should  have  been 
made  on  the  central  bank  plan,  even  before  its  formal  advocacy 
by  the  statesmen  appointed  to  frame  a  program  for  currency  re- 
form. We  do  not  doubt  that  this  attitude  of  the  public  mind  will 
be  seen  and  appreciated  by  members  of  the  Monetary  Commis- 
sion and  by  Senator  Aldrich  himself.  Even  members  of  the 
Commission  who  have  allowed  to  be  known  their  predisposition 
for  a  central  bank,  have  qualified  this  by  saying  that  they  were 

204 


APPENDIX 

open  to  conviction  in  behalf  of  any  other  plan.  This  fact  is 
well  to  keep  in  mind  because  it  indicates  that  the  discussion, 
even  in  its  preliminary  stages,  is  not  yet  closed;  that  the  choice 
of  the  avenue  of  reform  to  be  pursued  is  not  yet  made  and  will 
not  be  made  until  after  abundant  further  discussion. — New  York 
"Commercial  and  Financial  Chronicle,"  Nov.  13,  '09. 

Country  Is  Receptive  Now. 

Senator  R.  M.  La  Follette,  who  has  been  heard  of  for  some 
little  time  in  connection  with  expert  banking  opinion,  has  again 
been  lecturing  out  in  the  Middle  West  and  has  taken  a  further 
stand  against  Wall  Street  and  the  establishment  of  a  Central 
Bank  for  Banks. 

The  appeal  from  the  Senator  from  the  Middle  West  to 
sectional  prejudice  is  scarcely  politic.  There  are  some  ques- 
tions which  must  be  decided  for  the  whole  of  the  Nation  and 
any  narrowness  is  harmful  to  every  part.  Serious  considera- 
tion of  the  problem  confronting  the  country  must  lead  this 
United  States  Senator,  as  well  as  those  who  believe  in  him,  to 
the  conclusion  that  if  the  fundamentally  right  thing  is  done, 
the  result  can  not  be  fundamentally  wrong.  The  central  bank- 
ing institutions  of  other  nations  are  not  controlled  by  the  specu- 
lative element.  The  principle  involved  is  nothing  new  or 
strange.  It  has  been  proven  to  be  right.  It  is  the  basis  of  our 
own  Government. 

The  broadening  of  the  discussion  of  the  subject,  even  led 
by  opposition,  can  not  but  be  instructive  and  eventually  helpful. 
It  is  evident  in  the  general  attitude  of  the  country  that  any 
feeling  of  enmity  toward  the  idea  is  confined  to  the  few.  The 
clamor  that  arose  at  the  mention  of  the  plan  three  or  four 
years  ago  has  quieted  down  now  to  respectful  attention. — New 
York  "American  Banker,"  Oct.  23,  '09. 

Favors  Canadian  System. 

In  addressing  the  Pennsylvania  Bankers'  convention  Mr. 
Vrceland  complained  that  each  individual  bank  "figures  upon  its 
awn  profits  as  to  whether  the  volume  of  its  note  issue  shall  in- 
crease    or    decrease,"    the    result    being    that    the    circulation 

205 


APPENDIX 

at  any  given  time  "depends  more  upon  the  price  of 
Government  bonds  than  upon  the  needs  of  business." 
This  is  a  true  bill  against  the  bond-security;  it  is  one 
of  the  chief  arguments  for  an  asset  currency.  But  it 
is  not  an  argument  for  a  central  bank.  The  individual  banks, 
doing  business  with  their  own  customers,  know  quite  as  well  as 
any  central  authority,  and  much  better  than  any  such  authority 
with  intimate  political  relations,  whether  more  currency  is  needed 
or  less.  With  notes  issued  against  general  assets  and  with  a 
thoroughly  efiBcient  redemption  system  Canadian  banking  ex- 
pands and  contracts  the  circulation  in  perfect  response  to  the 
commercial  requirements. — "Journal  of  Commerce,"  October 
8,  1909. 

Trend   of   Opinion   Favorable. 

While  there  are  men  thoroughly  conversant  with  banking 
and  its  relation  in  this  country  both  to  business  and  to  the  na- 
tional government  who  afifect  to  believe  that  a  system  com- 
prehending a  central  bank  of  issue  like  those  of  France,  Ger- 
many, Austria-Hungary  and  the  Netherlands  would  not  operate 
advantageously  here,  it  is  more  and  more  noticeable  every  day 
that  the  trend  of  popular  press  opinion  is  steadily  in  favor  of 
such  a  system — not  necessarily  exactly  like  any  one  of  the 
European  systems,  but  patterned  after  them.  The  system  in 
detail  is  well  worth  extended  study  by  American  bankers  and 
business  men  and  all  "currency  reformers"  and  especially  by 
the  national  law  makers  who  within  a  year  or  two  will  un- 
questionably be  called  to  pass  upon  some  legislative  proposal 
involving  the  establishment  of  a  central  bank  of  issue  under 
government  control  and  operation. — N.  Y.  "Commercial." 

The  Most  Suitable  Remedy. 

All  who  believe  in  the  central  bank  as  the  most  suitable 
and  serviceable  remedy  for  our  defective  currency  system  may 
find  both  hope  and  inspiration  in  the  remarks  of  the  President, 
in  favor  of  such  an  institution,  at  the  banquet  tendered  him  by 
the  Boston  Chamber  of  Commerce  on  Tuesday  night.  "It  is 
certain,"  said  he,  "that  our  banking  and  monetary  system  is  a 

206 


APPENDIX 

patched-up  affair  which  satisfies  nobody,  and  least  of  all  those 
who  are  clear-headed  and  have  a  knowledge  of  what  a  financial 
system  should  be." 

The  readers  and  contemporaries  of  The  Wall  Street  Sum- 
mary know  full  well  that  for  the  last  four  years  this  paper  has 
advocated  consistently  and  without  let-up  the  identical  reform 
which  President  Taft  now  approves;  and,  further,  that  the  Presi- 
dent's terse,  brief,  and  pertinent  characterization  of  our  present 
currency  system  is  expressed  in  the  same  language  which  The 
Summary  reiterated  on  that  subject  again  and  again:  "a  patched- 
up  affair." — Wall  Street  Summary,  Sept.  17,  '09. 


Dangerous  Influences  Can  Be  Avoided. 

The  frank  declaration  of  President  Taft  at  Boston  on  Tues- 
day that  the  country  should  take  up  seriously  the  problem  of 
establishing  a  central  bank  will  go  a  long  way  towards  removing 
the  subject  from  the  realm  of  theory  to  that  of  practical  politics. 
*  *  *  The  declaration  of  the  President  indicates  that  he  does 
not  cherish  the  fear  felt  in  some  quarters,  that  political  prej- 
udice is  too  strong  to  permit  the  creation  of  a  central  bank 
in  this  country.  His  apparent  trust  in  the  disinterestedness  of 
Senator  Aldrich  in  the  matter  will  strike  some  of  those  who 
observed  the  tariff  contest  as  a  striking  instance  of  "the  tri- 
umph of  faith  over  experience."  If  the  subject  is  thoroughly 
threshed  out,  however,  there  is  little  danger  that  the  two  evils 
which  Senator  Aldrich  suggests — control  by  Wall  Street  in- 
terests and  mixing  up  in  politics — will  be  permitted  to  find 
a  place  in  the  law.  The  measure  will  be  too  closely  scrutinized 
by  disinterested  students  of  the  subject  to  permit  any  such 
influence.— "Wall  Street  Journal,"  Sept.  16,  '09. 

The  Central  Bank  Idea. 
The  popular  sentiment  which  holds  the  managers  of  the 
great  European  banks  in  such  high  estimation  and  the  absten- 
tion of  political  interference  or  manipulation  would  be  im- 
possible here.  It  would  be  impossible  to  select  a  management 
for  a  central  bank  which  would  satisfy  the  whole  country,  and 

207 


APPENDIX 

it  would  be  impossible  to  keep  the  operations  of  such  a  bank 
outside  the  field  of  political  discussion.  Instead  of  being  a 
useful  instrument  for  our  business  affairs,  it  would  be  a  center 
of  political  and  business  disturbance.  No  central  bank  could 
satisfy  the  various  needs  of  such  a  country  as  extensive  as  ours 
without  arousing  jealousies  and  antagonisms,  because  we  have 
not  in  our  public  sentiment  the  influence  which  in  Europe 
takes  for  granted  that  whatever  the  central  banks  do  cannot  be 
questioned  either  from  the  standpoint  of  politics  or  business. — 
N.  Y.  "Daily  Banker,"  Dec.  9,  '09. 

Must  Be  Discussed  in  Detail. 

The  intelligence  of  the  country  should  demand  that  those 
advocates  of  the  central  bank  who  will  be  influential  in  the 
House  of  Representatives  and  in  the  Senate  in  framing  the  bill 
embodying  the  central-bank  idea  shall  give  to  the  country 
straight,  clean-cut  statements  of  the  vital  features  of  the  bill,  so 
that  the  trained  minds  of  the  country  may  be  in  a  position  to 
inform  the  people  of  the  certain  workings  out  of  the  bill,  to  the 
end  that  a  well-grounded  movement  for  necessary  reforms  in 
American  finance  shall  not  be  permitted  to  be  debauched  in  the 
legislative  process  and  made  the  pretext  for  a  law  that  will  in- 
tensify financial  ills. — "Manufacturers'  Record,"  Baltimore,  Oct. 
28,  1909. 

Full   Demonstration  Necessary. 

Senator  Aldrich  is  on  the  point  of  telling  the  country  about 
his  central  bank  plan.  The  Senator's  lecture  course,  so  to  speak, 
will  be  devoted  mainly  to  the  middle  West,  where  education 
as  to  the  virtues  of  a  central  bank  is  apparently  necessary.  Edu- 
cation, according  to  the  press,  is  also  necessary  in  the  South 
and  in  the  East,  not  to  mention  the  Pacific  slope.  That  the  as- 
tute Senator  from  Rhode  Island  knows  this  is  beyond  question. 
Hence  his  eagerness  to  inaugurate  a  campaign  of  education 
without  loss  of  time.  That  he  will  find  an  awakened  interest 
in  the  currency  problem  is  evident;  and  he  also  will  discover 
that  the  central  bank  plan  will  not  be  accepted  by  the  country 
until  its  alleged  advantages  are  fully  demonstrated. — "American 
Industries,"  for  November,  '09. 

208 


APPENDIX 

Opposition  Should  Be  Sensible. 

If  the  creation  of  a  central  bank  is  to  be  opposed,  it  should 
be  for  business  and  economic  reasons  alone.  The  reform  of  our 
currency  system  does  not  necessarily  require  the  establishment 
of  such  an  institution.  *  *  *  Opposition  of  this  character  is 
entirely  rational  and  is  deserving  of  serious  consideration.  It  has 
nothing  in  common,  however,  with  the  hostility  which  grows  out 
of  the  absurd  fear  that  the  establishment  of  a  central  bank  of 
issue  would  be  tantamount  to  handing  over  all  our  money  to  a 
handful  of  Wall  Street  financial  magnates. — ^"Commercial  Bulle- 
tin," Boston,  Nov.  6,  1909. 


A  Central  Reserve  Bank. 

There  are  a  great  many  reasons  why  this  country  should 
have  a  great  central  bank,  a  bank  for  bankers  and  a  bank  of 
issue.  President  Roberts,  of  the  Commercial  National  Bank  of 
Chicago,  has  on  many  occasions  clearly  pointed  out  the  many 
advantages  such  a  bank  would  be  to  the  banking  system  of  the 
country  and  to  business  generally.  If  we  had  such  a  central  bank  as 
we  find  in  other  countries  it  would  be  given  special  powers  to 
conserve  our  banking  reserves.  It  would  not  be  run  for  profit 
but  to  protect  and  safeguard  the  general  financial  situation. 
Such  a  bank  would  not  be  "loaned  up  to  the  limit,"  but  would 
carry  such  a  large  reserve  at  all  times  that  it  could  quickly 
respond  to  unusual  demands  in  times  of  panic  or  other  financial 
disturbance.  We  already  have  the  nucleus  of  such  a  bank  in  our 
$860,000,000  gold  reserve  in  the  U.  S.  Treasury,  the  largest 
gold  reserve  in  the  world,  and,  as  Mr.  Roberts  adds,  "the  most 
ineflfective."  A  central  bank  would  transform  this  immense 
store  of  gold  from  mere  warehouse  merchandise  into  an  active 
banking  power.  When  this  country  establishes  such  a  bank, 
we  shall  take  our  place  among  the  nations  in  financial  matters 
where  we  belong — at  the  head  of  the  front  rank  and  quit  trail- 
ing along  in  Class  B.  Our  banking  system  will  be  strength- 
ened so  as  to  withstand  any  shock  or  pressure  by  providing  a 
reserve  center  and  making  it  a  system  in  fact,  a  body  with  a 
recognized  head. — Minneapolis  "Commercial  West,"  Oct.  23,  '09. 

209 


APPENDIX 

Commercial  Paper's  Importance. 

The  central  bank  will  not  play  the  role  of  Santa  Claus.  It 
will  not  make  presents  of  its  notes  to  needy  banks,  but  will  in- 
stead require  of  them  ample  security.  Such  security  will  con- 
sist of  the  more  liquid  of  the  assets  of  those  needy  local  banks. 
The  central  bank  cannot  in  reason  accept  anything  else.  It  will 
not  fultil  its  mission  if  it  does  not  so  arrange  its  affairs  that  its 
note  issues  are  contracted  as  rapidly  when  money  begins  to  be- 
come easy  as  they  are  expanded  when  money  tightens.  But 
how  can  its  issues  contract  unless  back  of  them  are  assets  which 
run  rapidly  to  money?  Obviously,  they  cannot,  and  any  rational 
scheme  for  a  central  bank  in  this  country  will  demand  that  the 
security  back  of  the  institution's  issues  shall  consist  mainly  of 
the  highest  grade  of  commercial  paper,  which  has  at  the  utmost 
not  more  than  three  or  four  months  to  run. — "U.  S.  Investor," 
October  16,  1909. 

Popular  Feeling  Hostile. 
Nor  is  the  argument  that  such  an  institution  might  come 
under  the  control  of  "the  trusts"  or  some  undesirable  persons 
an  empty  one  by  any  means;  nor  yet  the  argument  that  a  central 
bank  would  concentrate  business  at  one  point  to  the  hurt  of 
thousands  of  other  points.  We  have  seen  in  the  past  few  years 
the  enormous  aggregation  of  interests  in  the  city  of  New  York 
which  were  formerly  localized  elsewhere,  and  we  have  seen 
hundreds  of  industrial  concerns  combine  into  huge  corporations. 
The  tendency  toward  the  creation  of  great  units  is  one  of  the 
most  conspicuous  in  the  history  of  our  business  affairs  for  a 
generation  past.  If  a  central  bank  is  to  commend  itself 
to  the  people  of  the  United  States  the  plan  must  be 
so  devised  as  to  afford  promise  of  avoiding  all  these 
evils.  The  popular  feeling,  and  to  a  great  extent  the  feeling  of 
experienced  business  men,  is  decidedly  against  this  device  for 
these  well  known  reasons,  and  they  must  be  satisfied  before  the 
plan  will  become  workable.  And  it  would  be  exceedingly  un- 
fortunate to  have  such  an  institution  established  by  a  close  vote 
in  Congress,  for  that  would  mean  from  the  start  a  serious  oppo- 
sition to  it  which  would  stand  in  the  waj-  of  its  usefulness. — 
"The  Economist,"  Chicago,  Oct.  23,  1909. 

210 


APPENDIX 

Impossible. 

As  the  years  have  gone  on,  the  larger  financial  interests  of  the 
country  have  become  more  and  more  impressed  with  the  idea 
of  reorganizing  our  banking  system  more  along  the  lines  of 
those  of  England  or  Germany.  This  system  embraces  as  its 
corner  stone  a  central  bank  of  issue.  The  United  States  in  its 
past  history  twice  tested  the  effects  and  value  of  a  central  bank 
and  both  times  rejected  the  plan.  So  that  throughout  the  length 
and  breadth  of  the  land  there  has  been,  during  the  past  half-cen- 
tury, a  very  strong  prejudice  against  any  proposal  for  a  great 
central  bank  which  would  control  the  currency,  or  act  as  a  joint 
representative  of  the  government  and  large  financial  interests  in 
this  respect.  We  are  inclined  to  agree  with  Mr.  Victor  Mora- 
wetz  that,  whatever  the  merits  of  a  central  bank  may  be,  it  will 
be  politically  impossible  to  secure  the  legislation  necessary  to  es- 
tablish such  a  bank. — "Moody's  Magazine,"  November,  1909. 

Bankers  Unanimous. 

In  all  likelihood  the  currency  problem  will  take  precedence 
over  the  tariff  at  the  forthcoming  session  of  Congress.  At  pres- 
ent it  is  occupying  the  attention  of  the  business  politicians  and 
of  a  large  section  of  the  daily  press  throughout  the  country. 
Particularly  prominent  in  the  discussion  of  the  month  were  the 
bankers,  who  met  in  the  thirty-fifth  annual  convention  of  their 
association  at  Chicago,  September  14th.  The  deliberations  there 
showed  exactly  where  the  country's  bankers  stand. 

However,  many  different  opinions  were  expressed  as  to  de- 
tail. There  appeared  to  be  a  unanimous  sentiment  in  favor  of 
the  proposed  central  bank  plan,  which  it  is  thought  will  be  pre- 
sented to  Congress  by  the  commission  of  which  Senator  Aldrich 
is  chairman.  Indeed,  the  only  dissenting  voice  during  the  week 
was  that  of  Speaker  Cannon,  who  announced  himself  against  the 
idea,  for  no  particular  reason  except  that  he  was  inimical  to  radi- 
cal reform. — "Van  Norden  Magazine,"  November,  1909. 


211 


Index 


Act  of  Mar.    14,   1900,  2 

Affirmative,     central     bank     contro- 
versy,   113 

Asset   currency,   57 

Forgan,   James   B.,   on,   148 
Nash,    Wm.    A.,    on,    146 
Redemption    of,    145 

Banking   system,    our,    19,    20 

Authority     concentrated,    lacking, 

19 
Isolated    units,    19 
No   responsible  leader,    19 

Bank  of    Bavaria,    48 

Bank  of  Dresden,  48 

Bank  of  England,  21,  28,  31,  42,64 

Administrative    board    of,    36 

Borrowing    from    market,    28,     51 

Branches    of,    33 

Capital  of,  31,  35 

Charter   of,    21,   31,    33,    34,   35 

Charter,    suspensions    of,    21,    22, 

23,  36 
Circulation    of,    34 
Currency   not    elastic,    36 
Custodian   of   reserves,   21,    37 
Discount   rate,   control    of,   22,   23, 

24,  27,    28,   42 
Dividends    of,   37 

First   weekly   report  of,   35 

Governmental   restriction,   37 

Note-issuing  monopoly  of,   33 

Oldest    of   central   banks,   24 

Ownership    of,    31 

Panic  of  1847   and,  21 

Panic  of   1857   and,  22 

Panic  of  1866  and,  22 

Profits   of,   37 

Protector   of   British   credit,   29 

Regulator   of    money    market,    29, 

42 
Reserves    of,    32,    42,    45 
World's     free     gold     market     and, 

29,    36 

Bank  of   France,   17,   20,   24,   27,   38 
Absorption    of    other   banks,    40 
Branches    of,   44 
Capital  of,   38,   39,   40,   45 


Charter  of,  38,  39,  40,  43,  44 
Circulation   unlimited,    43 
Departmental    banks    and,    39,    40 
Discount  rate  of,  43,  44,  45 
Exempt   from    usury   laws,    40 
Foreign  exchange  and,  40,  43 
Gold    stock    of,   42 
Government    of,    45 
Note   issues   of,    38,    39,    43,   43 
Ownership    of,    45 
Rate  advances   of,  discouraged,  43 
Redemption   policy    of,  42,    151 
Rediscounting   powers    of,    17,    18, 

44,  45 
Reserves   of,    42,    43,    44,   45 
Serves   government   in    1870-1,   40, 

41,    42 
Specie   suspension   of,   40 
Weekly   statement    of,   45 

Bank  of  North  America,  60,   61,  62 

Bank    of    Pennsylvania,    59,    60 

Bank  of  Saxony,  48 

Bank   of   the   United    States    (first), 
63 

Branches    of,    64 
Capital    of,    63 

Charter,    renewal   of,    defeated,    66 
Commercial    dealings    of,    65 
Directors   of,    63 
Disbursements    of,    66 
Dividends    of,    65,    67 
Government's    stock    holdings    in, 

64 
Government's  profits  on  stock  of, 

65 
Loans    of,    to    government,    64,    65 
Note    issues    of,    64 
Opposition  to,    66,    67 
State  bank   note   issues    and,   66 
Stockholders   of,   voting   rights,  63 
Victim    of    party    spirit,    67 

Bank    of    the    United    States    (sec- 
ond),   74 

Biddle,    Nicholas    and,    80,    81 
Branches    of,    75 
Capital    of,    74 
Clay,    Henry    and,    82 
Competitor  of  banks,   76 
Deposits     of     government     discre- 
tionary,  76 


213 


INDEX 


Directors    of,    75 

Enters   politics,   82 

Government,    owner    of    stock    in, 

74 
Government's   profits   in   stock   of. 

75 
Jackson-Biddle    controversy,    81 
Jackson's    hostility,    80 
Jackson's   veto,   82 
Jackson's     withdrawal     of     public 

deposits   from,   82 
Liquidation    of,    83 
Losses    of,    78 
Mistakes    two,    of,    82 
National   debt   paid,   80 
Note    issues    of,    75 
Notes   of,    at   par  everywhere,   80 
Pennsylvania    charter    of.    83 
Policy   of,    78,    79 
Portsmouth    branch    of,    81 
Premium    on    stock  of,    80 
Presidential    contest    and,    82 
Services  of,   Ti,  80 
Speculation    in    shares    of,    17 
Stockholders   of,   voting   rights,   75 
Taxation   of,   by   states,  76 
Trouble     in     Baltimore,     77 
Woodbury-Mason     issue,     81 
Wrath   of  state  banks,   76 

Bank    of   Wurtemberg,    48 

Baring   Bros.,  failure   of,    23 

Biddle,    Nicholas,    80,    81 

"Black    Friday,"    22 

Bonds  (see  Currency  Problem,  Na- 
tional Bank  Currency,  and  Re- 
demption) 

"Borrowing    from    the   Market,"    28, 

Calling   loans,    effect    of,    6 

"Camillus,"    68 

Canada's     banking     system,     53 

Branch   banks   of,    53 

Branches,  circulating   agencies    of, 

56 
Credit    currency,    54,    57 
Currency    always    adequate,    57 
Early   banks    of    Canada,    53,   54 
Economy   of  branch   system,    56 
Elasticity     of    currency,     57 
Local    borrowers    served   by,    57 
Note   issues,    54,    57 
Notes     issued     by     parent    banks, 

through     branches      in      distant 

localities,    55 
Notes  of  failed  banks,  55 


Prerequisites    to    organization 

under,    54 
Provincial    bank    of    issue,     54 
Prompt   redemption,    54,    150 
Redemption    guaranty    fund,    55 
Regulation    of    interest    rate,    55 
Reserves,    56 

Central    Bank,   15 

Authority    concentrated,    19 

Branches    of,     157 

Business  and  note  issues   of,  20 

Characteristic,    distinguishing,    16 

Coherent   whole,   20 

Coin    reserve    against    circulation, 

157 
Commercial  needs  and,   25 
Concentrated  authority,  19 
Confidence    in,    20,    24,    25 
Controls   money   market,    15,   28 
Controversy    over,     113-132 
Converts  credit   into  currency,   21 
Credit    of    notes,    how    preserved, 

20 
Crisis,    policy   in    a,    26 
Currency    always   supplied,    15,    19 
Currency   contraction,    16 
Currency    of,    elastic,    15 
Currency    expansion,    16 
Currency    famines    avoided,    15 
Danger,   sanctuary    in    periods    of, 

15 
Definition    of,     15 
Discount    rate    and,    15,    28 
Distinguishing    characteristic,    16 
Economy      of      concentrated      re- 
serves,   25 
Effect  on  existing  banks,   156 
Excessive,    notes    cannot   become, 

20 
Financial    responsibility,    15 
Foreign     exchange     regulated    by, 

15,    28 
Foreign    systems,     31-57 
Functions,     15-29 
Gold   exportation,    28 
Gold   reserves    centralized   by,   21 
Gold   stock    conserved,    15,    28 
Gold    supply    maintained,    15 
Great    note-issuing    institution,    15 
Hepburn,    A.    Barton,    on,    16 
Hoarding,    18,    26 
Interest    rates,    26,    27,    28 
Irreproachable    credit,     19 
Issuing    functions,    2) 
Leadership    responsible,     19,    24 
Metallic    reserves,    15 
Most    conform    to   habit,    tradition 

and  experience,    160 
Note    contraction,    16 
Note    expansion,    16 
Note   issues   of,   20,  28,    151 
Notes    never    excessive,    20 
Notes    redeemed    in    gold,    20 
Notes   regulated  by  demand,   20 


214 


INDEX 


Over-trading,    28 

Plans   for,    85-112 

Policy  in  crisis,  26 

Press  on,    161 

Profits   of,    159 

Receptacle  for  Wall  Street  bonds, 
158 

Redemption    and,    ISl 

Rediscounting  power,  16,  17,  18, 
19,  27 

Reserves,    20,     21,    25,     151 

Responsible    leadership   of,    19,    24 

Retirement  of  legal  tenders  by, 
157 

Retirement  of  National-bank  cur- 
rency   by,    157 

Sanctuary   for  banks,    15 

Speculation,    28 

Claflin,    John,    85 

Clarke,    Dumont,    85 

Clay,   Henry,    67,    68,    82 

Clearing-house   certificates,    19 

Conant,   Charles   A.,   50,   78,   85 

Controversy,    central    bank,    113-132 

Credit    and   Business,  20 
Currency,    9,    19,    20,    57 

Credit    Lyonnais,    16 

Currency   Problem,    1-13 
Bond   issues,   four,    3 
Bond     syndicate,    4 
Elasticity,    8 
Endless   chain,  3 
Fiat   money,   4 
Gold    certificates,    1,    3,    15 
Gold  coin,    2,   3 
Gold    reserve,    2,    3 
Gold   standard,    2 
Legal    tenders,    2,    3,    16 
National-bank    notes,   2,   4,    5,    6 
"Patched-up    affair,"    1 
Redemption,    2,    3,    8 
Retiring  legal  tenders,  4 
Retiring    silver    certificates,    4 
Serviceable   system,    1,  8 
Silver  certificates,   1,   3,   16 
Silver    coin,    2 
Stringency,    4 
Taft    on,    1 

Treasury   notes,   2,    3,    16 
United    States    notes,    2,    3,    16 
Various  kinds    of,    1 
Volume   irreducible,    3 

Fiscal  bank  of  the  United  States,  83 

Forgan,    James    B.,    148 


Fornes,   Chas.    V.,   102 

Frame,    Andrew    J.,    99 

Gage,   Lyman  J.,   10,   92 

Gallatin,   Secretary,  65,  66,  67,  7i 

Hamilton,  Alexander,  61,  62,  63,  68 

Hansbrough,    Senator,    101 

Harris,    N.    W.,    97 

Imperial  Bank  of  Germany,  46-52 
Borrows    from   the    market,    51 
Branches,    50 
Capital,    47 
Circulation,   48,   49 
Contraction    of    currency,    49 
Control    of,   47,    52 
Control   of   money  market,   51 
Credit    notes,   52 
Current   transfers,    51 
Discount    rate,   49,    50 
Dividends,     52 
Economizes    specie,    51 
Elastic  device,   49 
Excess   circulation,   49 
Foreign    exchange,    51 
General    privileges,    51 
Government's     domination,     52 
Government's    profits,    52 
Note-issuing    powers,    48 
Note  issues   under  tax,   48 
Origin,    46 
Ownership,    47 
Panic    of    1907,   49 
Purchases    foreign    bills,    51 
Redemption,    50,    150 
Rediscounting    privileges,    50,    51 
Reserves,   48,   50,    51,   52 
Retirement   of   currency,   49 
Tax    on  circulation,   48 

Independent    Treasury    System,    83 

Jackson,    President,    83,    81,    82 

Joint-stock    Banks,    27,    50 

Knox,   John   J.,   80 

Leipziger    Bank,    18 

Lidderdale,   William,  23 

Madison,   President,   74 

Morawetz,    Victor,    109 

Morris,    Robert,    59,   60.    61.    62 


215 


INDEX 


Nash,   Wm.  A.,   146 

National-bank  currency,  4 

Based  on  government  bonds,  4,  y 
Bonds   and,  4 
Bond  speculation  and,  5 
Circulation    supports    bonds,     14^, 

150 
Contraction,     5 
Crop-moving    demands,    j 
Curtailment   of   credit   and,   5,   6 
Decrease   in  volume,    7 
Expansion,   5  . 

Fluctuations   in  bond   prices   and, 
•       149 
Gage,   Lyman  J.,   on,   10 
Increase   in   volume,    6,   7 
Inelasticity  of,  9 
Interest   rates    and,    5,    6,    7 
Investment    fixed,    4,    9 
National   debt    basis    of,    4 
Natural    currency,    8 
Not   money,    6  _ 

Not    related    to    busmess,    4,    6 
Panic    of    1907,    7 
Price  of  bonds  the  factor,   5 
Redemption,    149 
Redundant,   7 
Reserves  weakening  of,   5 
Rigidity  of,  9 
Speculation  and,    6 
Suspension,   7 

Negative,  central  bank  controversy, 
123 

New    York   Chamber   of   Commerce, 
85 

Overend,    Gurney   and   Co.,   22 

Peel,  Sir   Robert,    33 

Plans  for   a  central  bank,   85-112 


Polls,  two  currency  polls : 
Wall  Street  Summary's, 
Wright.    140 


133 


Press  on  a  central  bank,  161 
Financial    Press,   204 
National   Press,   162 

Redemption,    145 
Asset   Currency,    145 
Bond   prices   and,    149 
Current    redemption,    145 
Foreign   systems    and,    ISO,    151 
Greenbacks,    3,    149 
Inflation,    145 

National    bank    currency,    149 
Redundancy   and,    150 
System  inadequate,   149 
Wild-cat  banking,    145 

Reichsbank,   46,    48,   49,    50,    52 

Reynolds,  George  M.,  87 

Ridgely,    William    B.,    90 

Roberts,  George   E.,   94 

Royal    Bank   of    Prussia,    47 

Straker,    F.,   22,   35 

Straus,    Isidor,   85 

Sydenham,   Lord,    54 

Talbert,  Joseph  T.,   7 

Treat,   Chas.   H.,    105 

Van  Buren,   President,   83 

Vanderlip,    Frank   A.,   85 

Vreeland,    Edward    B.,    101 

Warburg,   Paul   M.,    106 

Webster,    Daniel,   74 

White,  Horace,  55 

Wright,    Charles   A.,    103 


216 


J^. 


Los  Angeles 
This  book  is  DUE  on  the  last  date  stamped  below. 


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